The borrower only pays the interest on the mortgage through monthly payments for a term that is fixed on an interest-only mortgage loan. The term is usually between 5 and 7 years. After the term is over, many refinance their homes, make a lump sum payment, or they begin paying off the principal of the loan.
Subsequently, one may also ask, how do you calculate a interest only payment?
Interest Rate – The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. Interest-Only Loan – Loans where the borrower pays only the interest on the principal balance for a set term while the principal balance remains unchanged.
How do you calculate a loan payment?
The loan payment calculation for an interest-only loan is easier. Multiply the amount you borrow by the annual interest rate. Then divide by the number of payments per year. Assuming you never make additional payments to reduce the principal balance, your monthly payment will remain the same.