X

What's coming up next year for mortgage rates... the Fed... housing markets... home prices? See HSH's 2022 Outlook for our expectations!

What's coming up next year for mortgage rates... the Fed... housing markets... home prices? See HSH's 2022 Outlook for our expectations!

How do I calculate my interest-only mortgage payments?

Q: Can you help me? How would I figure out the payments on a 30-year fixed-rate loan with the first 10 years being interest only? They call it a "10 year interest only" loan. If the starting amount was $153,995, what would payments be for the first 10 years? What would they be after the 10 years is up? The bank rep said they would never change, but I am very confused as to how they cannot change when the first 10 years is different. I did not know how to do this on your calculator. Please help me.

A: If you have a 30-year fixed mortgage rate with interest-only payments for the first 10 years, you need to do the amortization in two parts in order to get your answer.

The first part is straightforward

Bring up our mortgage calculator and key in your loan amount ($153,995), the interest rate (for this example, I've used 3.75 percent), the term (30 years), starting month and year (I've used April 2013) and select “yes” in the "Show Full Table" dropdown.

The full table will display further down the page below, broken out by year. Next to the year is a little plus sign [+]; click the one next to 2013.

The line which displays April 2013 is your key line; it shows the interest component of your payment as $481.23--and this is your interest-only payment for the first 10 years of your loan.

Your payment will change

You are correct, though. Your payment WILL change, starting with the 121st month, when the loan switches from interest-only payments to fully-amortizing ones.

Importantly, it will do so over the remaining 20-year term, so you will see a substantial rise in monthly payments at that time--due both to the shortened remaining term of the loan AND that your loan amount is still the original $153,995 you began with.

Part two

The second part is easy, too: Go back to our mortgage calculator and change the term from "30 Year fixed" to "20 Year Fixed" and press calculate again.

The remaining 20 years of your mortgage, at an interest rate of 3.75 percent, with an amount of $153,995 will have a fully-amortizing monthly payment of $913.03--just under DOUBLE what you had been paying.

This sizable leap in monthly payment can really wreck a monthly budget, so before you jump into an interest-only product, you will need to be sure that you can handle the spike in payment later on. These products aren't called I/O ("I Owe") for nothing!

By comparison, a fully-amortizing payment over 30-years from day one will cost you $713.17 with no payment shock, ever.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Submitting your question...

Question received! Check back later to see if your
question gets published.

Q: What loan amount does a mortgage need to be for it to be considered a Jumbo Loan?
JAN 03, 2022
A:

This question used to have a simple answer, since there was a "bright line" definition -- the conforming loan limit....

Read More
Q: What is the cost of getting a mortgage loan?
NOV 11, 2021
A:

 Costs and fees can vary depending upon lender policies and certain of the choices you make when you get your loan...

Read More
Q: What is the down payment required to get a mortgage these days?
NOV 03, 2021
A:

A: While some 100% financing may be available...

Read More
Add to Homescreen?
X
X
Install this web app on your phone :tap and then Add to homescreen