20 Year Fixed Interest-Only Mortgage
In this example, we'll look at a 20 year fixed-rate mortgage where you may make interest-only payments during the first 10 years. After that the mortgage is fully amortized. Thus, the payment will increase at the beginning of the 11th year even though the interest rate will remain unchanged over the life of the loan. Since it is a fixed-rate mortgage the minimum, maximum and starting interest rate will be the same and the index rate, margin and adjustments are ignored.
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When you press the Calculate button you'll see that after 10 years that the principal balance remains at the original loan amount and more than $10,000 per year has been paid in interest. At the beginning of year 11 the loan is fully amortized and the minimum monthly payment jumps $950 to $1,817, an increase of 110%! Note that the payment shock when entering the fully amortizing period is much greater for shorter term loans than longer ones. Click on the Calculate button in the form below to generate the results or enter your own information.
Fixed-Rate Interest-Only Mortgages:
30 Year Fixed Interest-Only Mortgage 20 Year Fixed Interest-Only Mortgage
Interest-Only ARMs With Interest-Only Periods Matching Fixed-Rate Period:
Interest-Only 3/1 ARM Interest-Only 5/1 ARM Interest Only 7/1 ARM
Interest-Only 10/1 ARM
Interest-Only ARMs With Interest Only Periods Longer Than Fixed-Rate Period:
3/1 ARM (10 Year Interest-Only Period) 5/1 ARM (10 Year Interest-Only Period)
7/1 ARM (10 Year Interest-Only Period)
