Interest-Only Mortgage Calculator

This tool helps buyers calculate current interest-only payments, but most interest-only loans are adjustable rate mortgages (ARMs). When the housing market is hot many people chase it, buying near the peak with interest-only loans. If home prices continue to climb, one can refinance at a lower rate. However if rates reset higher, so too will payments — causing home prices to decline & many marginal buyers to lose their equity & perhaps their homes. We also offer an I-O ARM calculator and a traditional ARM loan calculator.

Current Fairfield mortgage rates are displayed below. Given the current low-rate environment, you may be able to save thousands by locking in today's low rates.

Calculator Rates

Loan Details	Amount
Home Value:	($)
Down Payment:	($) (%)
Loan Amount:	($)
Loan Term:	(Yrs)
Fixed-rate Loan APR: See Current Fairfield Rates	(%)
Interest-Only Rate:	(%)
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Money Saving Tip: Lock-in Fairfield's Low 30-Year Mortgage Rates Today

How much money could you save? Compare lenders serving Fairfield to find the best loan to fit your needs & lock in low rates today!

By default 30-yr loans are displayed in the table below. Filters enable you to change the loan amount, duration, or loan type. If no results are shown or you would like to compare the rates against other introductory periods you can use the products menu to select rates on loans that reset after 1, 3, 5, 7 or 10 years. By default refi loans are displayed. Clicking on the purchase button displays current refi rates. Additional loan options are listed in the drop down filter area.

Paying an Interest-Only Mortgage

A 30-year, fixed-rate mortgage is the traditional loan choice for most homebuyers. However, the loan is inflexible, and it may not offer every buyer the options they need to meet their financial goals. For example, some home buyers may not have the down payment or other financial credentials they need to get the 30-year mortgage for the home they want to buy. Other home buyers may want to free up cash to invest in other opportunities while still taking advantage of a hot real estate market. In these and other instance, an interest-only mortgage may be the right option.

There are Some Advantages

The attraction of an interest-only loan is that it significantly lowers your initial monthly mortgage payment.

Using our above estimator, on a $250,000 loan with a 2.75 percent interest-only rate, you can expect to pay $572.92 monthly, compared to $1,088.02 for a conventional 30-year, fixed-rate loan at 3.25 percent interest. The conventional 30-year payment pays monthly interest along with a portion of the payment being applied toward principal. Most homebuyers who use and adjustable-rate or interest-only (IO) loan to purchase a home later refinance into a fully amortizing fixed-rate loan. If a person paid both of the above loans at the exact same rates throughout the duration of 30 years they would pay $391,685.69 on the fixed-rate loan or $206,250.00 on the IO loan. The difference is they would own the house outright with a fixed-rate loan and they would still owe $250,000 on it with an IO loan.

Those interested in investing in other asset classes or reinvesting most of their profits into their business may also choose an interest-only loan so they can put their money toward higher-yield investments.

Higher Returning & More Diversified Opportunities

The U.S. equity market has returned about 9.2% per year over the past 140 years. Further, when you invest in a diversified portfolio you can access liquidity by selling portions of it and periodically rebalancing your investments.

From 1963 to 2019 the median home price in the United States rose from $18,000 to $321,500, compounding at 5.28% annually. Over the same time period the average US home price increased from $19,300 to $383,900, for a 5.48% compounded annual rate of return.

The size of homes also increased significantly. In 1973 the average new home was 1,660 square feet and the median new house was 1,525 square feet. By 2015 the average new house was 2,687 square feet and the median new house was 2,467 square feet. Both average and median home sizes were up 62% and that was before the COVID-19 crisis accelerated the work from home movement.

Homeowners who can’t quite afford the home of their dreams but who expect to increase their earnings potential in a few years’ time may also find an interest-only loan to be the solution they need. For example, if a couple expects one partner to return to the workforce after caring for children or to receive a big promotion, they can get an interest-only loan at the start of their mortgage, then transition to a traditional loan when their financial situation improves. They can then purchase the home of their dreams without having to wait for their financial situation to adjust.

Risks of an Interest-Only Loan

There are many risks associated with interest-only home loans, so it is important to carefully consider all the options before choosing one.

Because you are only paying interest, you are not repaying principal to build equity. If you are trying to sell your home before the loan comes to term, you are betting on the value of your home appreciating in a very short time. If you lose that bet, you could end up owing a lot more money – or losing money in a sale. To minimize that risk and build equity one can periodically make extra payments.

Interest-only loans typically last for a term of five or 10 years. Within that time, the interest rate may adjust as often as monthly. If that’s the case, you could end up paying much more than you bargained for when you took out the loan. At the end of the loan, you have to either get another interest-only loan, or you have to get a conventional loan. Since you have built no equity up to that point, you can expect to have a significantly increased payment as you try to catch up on the principle.

In some cases, you may get negative amortization with an interest-only loan. That means that you aren’t even paying the full interest on the loan, so when the loan comes to term, you will have a higher balance than when you started paying it.

Calculating the Risk

By understanding all the risks and benefits associated with interest-only loans, you are in a good position to make the right decision for your family. You can use the above calculator to help you determine what kind of payments you can expect with an interest-only loan compared with a traditional mortgage, then use that information for educated financial planning.

You can use this tool to compare interest only mortgages to fully amortizing adjustable rate and fixed-rate mortgages.

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