# 30 Year Fixed Interest-Only Mortgage

Fixed rate interest-only mortgages have become quite popular lately. We'll look at a 30 year fixed mortgage with a 10 year interest-only period. After the interest-only period has elapsed the loan 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.

After reviewing this example, use the interest-only mortgage calculator to help you decide if an interest-only mortgage meets your needs.

Interest-Only Calculator
After 10 years that the principal balance remains at the original loan amount and more than \$11,000 per year has been paid in interest. At the beginning of year 11 the loan is fully amortized and the minimum monthly payment jumps \$341 to \$1,280, an increase of 36%.
Stable
MonthInterest
Rate
Index
Rate
Payment Interest Principal Balance
16.625%0.000%\$939\$939\$0\$170,000
26.625%0.000%\$939\$939\$0\$170,000
36.625%0.000%\$939\$939\$0\$170,000
46.625%0.000%\$939\$939\$0\$170,000
56.625%0.000%\$939\$939\$0\$170,000
66.625%0.000%\$939\$939\$0\$170,000
76.625%0.000%\$939\$939\$0\$170,000
86.625%0.000%\$939\$939\$0\$170,000
96.625%0.000%\$939\$939\$0\$170,000
106.625%0.000%\$939\$939\$0\$170,000
116.625%0.000%\$939\$939\$0\$170,000
126.625%0.000%\$939\$939\$0\$170,000
Year 1  \$11,262\$11,262\$0
136.625%0.000%\$939\$939\$0\$170,000
146.625%0.000%\$939\$939\$0\$170,000
156.625%0.000%\$939\$939\$0\$170,000
166.625%0.000%\$939\$939\$0\$170,000
176.625%0.000%\$939\$939\$0\$170,000
186.625%0.000%\$939\$939\$0\$170,000
196.625%0.000%\$939\$939\$0\$170,000
206.625%0.000%\$939\$939\$0\$170,000
216.625%0.000%\$939\$939\$0\$170,000
226.625%0.000%\$939\$939\$0\$170,000
236.625%0.000%\$939\$939\$0\$170,000
246.625%0.000%\$939\$939\$0\$170,000
Year 2  \$11,262\$11,262\$0
256.625%0.000%\$939\$939\$0\$170,000
266.625%0.000%\$939\$939\$0\$170,000
276.625%0.000%\$939\$939\$0\$170,000
286.625%0.000%\$939\$939\$0\$170,000
296.625%0.000%\$939\$939\$0\$170,000
306.625%0.000%\$939\$939\$0\$170,000
316.625%0.000%\$939\$939\$0\$170,000
326.625%0.000%\$939\$939\$0\$170,000
336.625%0.000%\$939\$939\$0\$170,000
346.625%0.000%\$939\$939\$0\$170,000
356.625%0.000%\$939\$939\$0\$170,000
366.625%0.000%\$939\$939\$0\$170,000
Year 3  \$11,262\$11,262\$0
376.625%0.000%\$939\$939\$0\$170,000
386.625%0.000%\$939\$939\$0\$170,000
396.625%0.000%\$939\$939\$0\$170,000
406.625%0.000%\$939\$939\$0\$170,000
416.625%0.000%\$939\$939\$0\$170,000
426.625%0.000%\$939\$939\$0\$170,000
436.625%0.000%\$939\$939\$0\$170,000
446.625%0.000%\$939\$939\$0\$170,000
456.625%0.000%\$939\$939\$0\$170,000
466.625%0.000%\$939\$939\$0\$170,000
476.625%0.000%\$939\$939\$0\$170,000
486.625%0.000%\$939\$939\$0\$170,000
Year 4  \$11,262\$11,262\$0
496.625%0.000%\$939\$939\$0\$170,000
506.625%0.000%\$939\$939\$0\$170,000
516.625%0.000%\$939\$939\$0\$170,000
526.625%0.000%\$939\$939\$0\$170,000
536.625%0.000%\$939\$939\$0\$170,000
546.625%0.000%\$939\$939\$0\$170,000
556.625%0.000%\$939\$939\$0\$170,000
566.625%0.000%\$939\$939\$0\$170,000
576.625%0.000%\$939\$939\$0\$170,000
586.625%0.000%\$939\$939\$0\$170,000
596.625%0.000%\$939\$939\$0\$170,000
606.625%0.000%\$939\$939\$0\$170,000
Year 5  \$11,262\$11,262\$0
616.625%0.000%\$939\$939\$0\$170,000
626.625%0.000%\$939\$939\$0\$170,000
636.625%0.000%\$939\$939\$0\$170,000
646.625%0.000%\$939\$939\$0\$170,000
656.625%0.000%\$939\$939\$0\$170,000
666.625%0.000%\$939\$939\$0\$170,000
676.625%0.000%\$939\$939\$0\$170,000
686.625%0.000%\$939\$939\$0\$170,000
696.625%0.000%\$939\$939\$0\$170,000
706.625%0.000%\$939\$939\$0\$170,000
716.625%0.000%\$939\$939\$0\$170,000
726.625%0.000%\$939\$939\$0\$170,000
Year 6  \$11,262\$11,262\$0
736.625%0.000%\$939\$939\$0\$170,000
746.625%0.000%\$939\$939\$0\$170,000
756.625%0.000%\$939\$939\$0\$170,000
766.625%0.000%\$939\$939\$0\$170,000
776.625%0.000%\$939\$939\$0\$170,000
786.625%0.000%\$939\$939\$0\$170,000
796.625%0.000%\$939\$939\$0\$170,000
806.625%0.000%\$939\$939\$0\$170,000
816.625%0.000%\$939\$939\$0\$170,000
826.625%0.000%\$939\$939\$0\$170,000
836.625%0.000%\$939\$939\$0\$170,000
846.625%0.000%\$939\$939\$0\$170,000
Year 7  \$11,262\$11,262\$0
856.625%0.000%\$939\$939\$0\$170,000
866.625%0.000%\$939\$939\$0\$170,000
876.625%0.000%\$939\$939\$0\$170,000
886.625%0.000%\$939\$939\$0\$170,000
896.625%0.000%\$939\$939\$0\$170,000
906.625%0.000%\$939\$939\$0\$170,000
916.625%0.000%\$939\$939\$0\$170,000
926.625%0.000%\$939\$939\$0\$170,000
936.625%0.000%\$939\$939\$0\$170,000
946.625%0.000%\$939\$939\$0\$170,000
956.625%0.000%\$939\$939\$0\$170,000
966.625%0.000%\$939\$939\$0\$170,000
Year 8  \$11,262\$11,262\$0
976.625%0.000%\$939\$939\$0\$170,000
986.625%0.000%\$939\$939\$0\$170,000
996.625%0.000%\$939\$939\$0\$170,000
1006.625%0.000%\$939\$939\$0\$170,000
1016.625%0.000%\$939\$939\$0\$170,000
1026.625%0.000%\$939\$939\$0\$170,000
1036.625%0.000%\$939\$939\$0\$170,000
1046.625%0.000%\$939\$939\$0\$170,000
1056.625%0.000%\$939\$939\$0\$170,000
1066.625%0.000%\$939\$939\$0\$170,000
1076.625%0.000%\$939\$939\$0\$170,000
1086.625%0.000%\$939\$939\$0\$170,000
Year 9  \$11,262\$11,262\$0
1096.625%0.000%\$939\$939\$0\$170,000
1106.625%0.000%\$939\$939\$0\$170,000
1116.625%0.000%\$939\$939\$0\$170,000
1126.625%0.000%\$939\$939\$0\$170,000
1136.625%0.000%\$939\$939\$0\$170,000
1146.625%0.000%\$939\$939\$0\$170,000
1156.625%0.000%\$939\$939\$0\$170,000
1166.625%0.000%\$939\$939\$0\$170,000
1176.625%0.000%\$939\$939\$0\$170,000
1186.625%0.000%\$939\$939\$0\$170,000
1196.625%0.000%\$939\$939\$0\$170,000
1206.625%0.000%\$939\$939\$0\$170,000
Year 10  \$11,262\$11,262\$0
1216.625%0.000%\$1,280\$939\$341\$169,659
1226.625%0.000%\$1,280\$937\$343\$169,315
1236.625%0.000%\$1,280\$935\$345\$168,970
1246.625%0.000%\$1,280\$933\$347\$168,623
1256.625%0.000%\$1,280\$931\$349\$168,274
1266.625%0.000%\$1,280\$929\$351\$167,923
1276.625%0.000%\$1,280\$927\$353\$167,570
1286.625%0.000%\$1,280\$925\$355\$167,215
1296.625%0.000%\$1,280\$923\$357\$166,858
1306.625%0.000%\$1,280\$921\$359\$166,499
1316.625%0.000%\$1,280\$919\$361\$166,138
1326.625%0.000%\$1,280\$917\$363\$165,775
Year 11  \$15,360\$11,136\$4,225
1336.625%0.000%\$1,280\$915\$365\$165,411
1346.625%0.000%\$1,280\$913\$367\$165,044
1356.625%0.000%\$1,280\$911\$369\$164,675
1366.625%0.000%\$1,280\$909\$371\$164,304
1376.625%0.000%\$1,280\$907\$373\$163,931
1386.625%0.000%\$1,280\$905\$375\$163,556
1396.625%0.000%\$1,280\$903\$377\$163,179
1406.625%0.000%\$1,280\$901\$379\$162,800
1416.625%0.000%\$1,280\$899\$381\$162,419
1426.625%0.000%\$1,280\$897\$383\$162,036
1436.625%0.000%\$1,280\$895\$385\$161,650
1446.625%0.000%\$1,280\$892\$388\$161,262
Year 12  \$15,360\$10,847\$4,513
1456.625%0.000%\$1,280\$890\$390\$160,873
1466.625%0.000%\$1,280\$888\$392\$160,481
1476.625%0.000%\$1,280\$886\$394\$160,087
1486.625%0.000%\$1,280\$884\$396\$159,691
1496.625%0.000%\$1,280\$882\$398\$159,292
1506.625%0.000%\$1,280\$879\$401\$158,892
1516.625%0.000%\$1,280\$877\$403\$158,489
1526.625%0.000%\$1,280\$875\$405\$158,084
1536.625%0.000%\$1,280\$873\$407\$157,677
1546.625%0.000%\$1,280\$871\$410\$157,267
1556.625%0.000%\$1,280\$868\$412\$156,855
1566.625%0.000%\$1,280\$866\$414\$156,441
Year 13  \$15,360\$10,539\$4,821
1576.625%0.000%\$1,280\$864\$416\$156,025
1586.625%0.000%\$1,280\$861\$419\$155,606
1596.625%0.000%\$1,280\$859\$421\$155,185
1606.625%0.000%\$1,280\$857\$423\$154,762
1616.625%0.000%\$1,280\$854\$426\$154,336
1626.625%0.000%\$1,280\$852\$428\$153,909
1636.625%0.000%\$1,280\$850\$430\$153,478
1646.625%0.000%\$1,280\$847\$433\$153,046
1656.625%0.000%\$1,280\$845\$435\$152,610
1666.625%0.000%\$1,280\$843\$437\$152,173
1676.625%0.000%\$1,280\$840\$440\$151,733
1686.625%0.000%\$1,280\$838\$442\$151,291
Year 14  \$15,360\$10,210\$5,151
1696.625%0.000%\$1,280\$835\$445\$150,846
1706.625%0.000%\$1,280\$833\$447\$150,399
1716.625%0.000%\$1,280\$830\$450\$149,949
1726.625%0.000%\$1,280\$828\$452\$149,497
1736.625%0.000%\$1,280\$825\$455\$149,042
1746.625%0.000%\$1,280\$823\$457\$148,585
1756.625%0.000%\$1,280\$820\$460\$148,125
1766.625%0.000%\$1,280\$818\$462\$147,663
1776.625%0.000%\$1,280\$815\$465\$147,198
1786.625%0.000%\$1,280\$813\$467\$146,731
1796.625%0.000%\$1,280\$810\$470\$146,261
1806.625%0.000%\$1,280\$807\$473\$145,788
Year 15  \$15,360\$9,858\$5,502
1816.625%0.000%\$1,280\$805\$475\$145,313
1826.625%0.000%\$1,280\$802\$478\$144,835
1836.625%0.000%\$1,280\$800\$480\$144,355
1846.625%0.000%\$1,280\$797\$483\$143,872
1856.625%0.000%\$1,280\$794\$486\$143,386
1866.625%0.000%\$1,280\$792\$488\$142,898
1876.625%0.000%\$1,280\$789\$491\$142,407
1886.625%0.000%\$1,280\$786\$494\$141,913
1896.625%0.000%\$1,280\$783\$497\$141,416
1906.625%0.000%\$1,280\$781\$499\$140,917
1916.625%0.000%\$1,280\$778\$502\$140,415
1926.625%0.000%\$1,280\$775\$505\$139,910
Year 16  \$15,360\$9,482\$5,878
1936.625%0.000%\$1,280\$772\$508\$139,403
1946.625%0.000%\$1,280\$770\$510\$138,892
1956.625%0.000%\$1,280\$767\$513\$138,379
1966.625%0.000%\$1,280\$764\$516\$137,863
1976.625%0.000%\$1,280\$761\$519\$137,344
1986.625%0.000%\$1,280\$758\$522\$136,822
1996.625%0.000%\$1,280\$755\$525\$136,298
2006.625%0.000%\$1,280\$752\$528\$135,770
2016.625%0.000%\$1,280\$750\$530\$135,240
2026.625%0.000%\$1,280\$747\$533\$134,706
2036.625%0.000%\$1,280\$744\$536\$134,170
2046.625%0.000%\$1,280\$741\$539\$133,631
Year 17  \$15,360\$9,081\$6,280
2056.625%0.000%\$1,280\$738\$542\$133,088
2066.625%0.000%\$1,280\$735\$545\$132,543
2076.625%0.000%\$1,280\$732\$548\$131,995
2086.625%0.000%\$1,280\$729\$551\$131,444
2096.625%0.000%\$1,280\$726\$554\$130,889
2106.625%0.000%\$1,280\$723\$557\$130,332
2116.625%0.000%\$1,280\$720\$560\$129,771
2126.625%0.000%\$1,280\$716\$564\$129,208
2136.625%0.000%\$1,280\$713\$567\$128,641
2146.625%0.000%\$1,280\$710\$570\$128,071
2156.625%0.000%\$1,280\$707\$573\$127,498
2166.625%0.000%\$1,280\$704\$576\$126,922
Year 18  \$15,360\$8,652\$6,708
2176.625%0.000%\$1,280\$701\$579\$126,343
2186.625%0.000%\$1,280\$698\$582\$125,760
2196.625%0.000%\$1,280\$694\$586\$125,175
2206.625%0.000%\$1,280\$691\$589\$124,586
2216.625%0.000%\$1,280\$688\$592\$123,994
2226.625%0.000%\$1,280\$685\$595\$123,398
2236.625%0.000%\$1,280\$681\$599\$122,799
2246.625%0.000%\$1,280\$678\$602\$122,197
2256.625%0.000%\$1,280\$675\$605\$121,592
2266.625%0.000%\$1,280\$671\$609\$120,983
2276.625%0.000%\$1,280\$668\$612\$120,371
2286.625%0.000%\$1,280\$665\$615\$119,756
Year 19  \$15,360\$8,194\$7,167
2296.625%0.000%\$1,280\$661\$619\$119,137
2306.625%0.000%\$1,280\$658\$622\$118,514
2316.625%0.000%\$1,280\$654\$626\$117,889
2326.625%0.000%\$1,280\$651\$629\$117,260
2336.625%0.000%\$1,280\$647\$633\$116,627
2346.625%0.000%\$1,280\$644\$636\$115,991
2356.625%0.000%\$1,280\$640\$640\$115,351
2366.625%0.000%\$1,280\$637\$643\$114,708
2376.625%0.000%\$1,280\$633\$647\$114,061
2386.625%0.000%\$1,280\$630\$650\$113,411
2396.625%0.000%\$1,280\$626\$654\$112,757
2406.625%0.000%\$1,280\$623\$658\$112,099
Year 20  \$15,360\$7,704\$7,656
2416.625%0.000%\$1,280\$619\$661\$111,438
2426.625%0.000%\$1,280\$615\$665\$110,774
2436.625%0.000%\$1,280\$612\$668\$110,105
2446.625%0.000%\$1,280\$608\$672\$109,433
2456.625%0.000%\$1,280\$604\$676\$108,757
2466.625%0.000%\$1,280\$600\$680\$108,077
2476.625%0.000%\$1,280\$597\$683\$107,394
2486.625%0.000%\$1,280\$593\$687\$106,707
2496.625%0.000%\$1,280\$589\$691\$106,016
2506.625%0.000%\$1,280\$585\$695\$105,321
2516.625%0.000%\$1,280\$581\$699\$104,623
2526.625%0.000%\$1,280\$578\$702\$103,920
Year 21  \$15,360\$7,181\$8,179
2536.625%0.000%\$1,280\$574\$706\$103,214
2546.625%0.000%\$1,280\$570\$710\$102,504
2556.625%0.000%\$1,280\$566\$714\$101,790
2566.625%0.000%\$1,280\$562\$718\$101,072
2576.625%0.000%\$1,280\$558\$722\$100,350
2586.625%0.000%\$1,280\$554\$726\$99,624
2596.625%0.000%\$1,280\$550\$730\$98,894
2606.625%0.000%\$1,280\$546\$734\$98,160
2616.625%0.000%\$1,280\$542\$738\$97,422
2626.625%0.000%\$1,280\$538\$742\$96,679
2636.625%0.000%\$1,280\$534\$746\$95,933
2646.625%0.000%\$1,280\$530\$750\$95,183
Year 22  \$15,360\$6,623\$8,738
2656.625%0.000%\$1,280\$525\$755\$94,428
2666.625%0.000%\$1,280\$521\$759\$93,669
2676.625%0.000%\$1,280\$517\$763\$92,907
2686.625%0.000%\$1,280\$513\$767\$92,139
2696.625%0.000%\$1,280\$509\$771\$91,368
2706.625%0.000%\$1,280\$504\$776\$90,593
2716.625%0.000%\$1,280\$500\$780\$89,813
2726.625%0.000%\$1,280\$496\$784\$89,029
2736.625%0.000%\$1,280\$492\$789\$88,240
2746.625%0.000%\$1,280\$487\$793\$87,447
2756.625%0.000%\$1,280\$483\$797\$86,650
2766.625%0.000%\$1,280\$478\$802\$85,848
Year 23  \$15,360\$6,026\$9,334
2776.625%0.000%\$1,280\$474\$806\$85,042
2786.625%0.000%\$1,280\$470\$811\$84,232
2796.625%0.000%\$1,280\$465\$815\$83,417
2806.625%0.000%\$1,280\$461\$819\$82,597
2816.625%0.000%\$1,280\$456\$824\$81,773
2826.625%0.000%\$1,280\$451\$829\$80,945
2836.625%0.000%\$1,280\$447\$833\$80,111
2846.625%0.000%\$1,280\$442\$838\$79,274
2856.625%0.000%\$1,280\$438\$842\$78,431
2866.625%0.000%\$1,280\$433\$847\$77,584
2876.625%0.000%\$1,280\$428\$852\$76,733
2886.625%0.000%\$1,280\$424\$856\$75,876
Year 24  \$15,360\$5,388\$9,972
2896.625%0.000%\$1,280\$419\$861\$75,015
2906.625%0.000%\$1,280\$414\$866\$74,149
2916.625%0.000%\$1,280\$409\$871\$73,279
2926.625%0.000%\$1,280\$405\$875\$72,403
2936.625%0.000%\$1,280\$400\$880\$71,523
2946.625%0.000%\$1,280\$395\$885\$70,638
2956.625%0.000%\$1,280\$390\$890\$69,748
2966.625%0.000%\$1,280\$385\$895\$68,853
2976.625%0.000%\$1,280\$380\$900\$67,953
2986.625%0.000%\$1,280\$375\$905\$67,048
2996.625%0.000%\$1,280\$370\$910\$66,138
3006.625%0.000%\$1,280\$365\$915\$65,223
Year 25  \$15,360\$4,707\$10,653
3016.625%0.000%\$1,280\$360\$920\$64,303
3026.625%0.000%\$1,280\$355\$925\$63,378
3036.625%0.000%\$1,280\$350\$930\$62,448
3046.625%0.000%\$1,280\$345\$935\$61,513
3056.625%0.000%\$1,280\$340\$940\$60,573
3066.625%0.000%\$1,280\$334\$946\$59,627
3076.625%0.000%\$1,280\$329\$951\$58,676
3086.625%0.000%\$1,280\$324\$956\$57,720
3096.625%0.000%\$1,280\$319\$961\$56,759
3106.625%0.000%\$1,280\$313\$967\$55,792
3116.625%0.000%\$1,280\$308\$972\$54,820
3126.625%0.000%\$1,280\$303\$977\$53,843
Year 26  \$15,360\$3,980\$11,381
3136.625%0.000%\$1,280\$297\$983\$52,860
3146.625%0.000%\$1,280\$292\$988\$51,872
3156.625%0.000%\$1,280\$286\$994\$50,878
3166.625%0.000%\$1,280\$281\$999\$49,879
3176.625%0.000%\$1,280\$275\$1,005\$48,874
3186.625%0.000%\$1,280\$270\$1,010\$47,864
3196.625%0.000%\$1,280\$264\$1,016\$46,848
3206.625%0.000%\$1,280\$259\$1,021\$45,827
3216.625%0.000%\$1,280\$253\$1,027\$44,800
3226.625%0.000%\$1,280\$247\$1,033\$43,767
3236.625%0.000%\$1,280\$242\$1,038\$42,729
3246.625%0.000%\$1,280\$236\$1,044\$41,685
Year 27  \$15,360\$3,202\$12,158
3256.625%0.000%\$1,280\$230\$1,050\$40,635
3266.625%0.000%\$1,280\$224\$1,056\$39,579
3276.625%0.000%\$1,280\$219\$1,062\$38,518
3286.625%0.000%\$1,280\$213\$1,067\$37,450
3296.625%0.000%\$1,280\$207\$1,073\$36,377
3306.625%0.000%\$1,280\$201\$1,079\$35,298
3316.625%0.000%\$1,280\$195\$1,085\$34,213
3326.625%0.000%\$1,280\$189\$1,091\$33,122
3336.625%0.000%\$1,280\$183\$1,097\$32,024
3346.625%0.000%\$1,280\$177\$1,103\$30,921
3356.625%0.000%\$1,280\$171\$1,109\$29,812
3366.625%0.000%\$1,280\$165\$1,115\$28,696
Year 28  \$15,360\$2,372\$12,988
3376.625%0.000%\$1,280\$158\$1,122\$27,575
3386.625%0.000%\$1,280\$152\$1,128\$26,447
3396.625%0.000%\$1,280\$146\$1,134\$25,313
3406.625%0.000%\$1,280\$140\$1,140\$24,173
3416.625%0.000%\$1,280\$133\$1,147\$23,026
3426.625%0.000%\$1,280\$127\$1,153\$21,873
3436.625%0.000%\$1,280\$121\$1,159\$20,714
3446.625%0.000%\$1,280\$114\$1,166\$19,548
3456.625%0.000%\$1,280\$108\$1,172\$18,376
3466.625%0.000%\$1,280\$101\$1,179\$17,198
3476.625%0.000%\$1,280\$95\$1,185\$16,013
3486.625%0.000%\$1,280\$88\$1,192\$14,821
Year 29  \$15,360\$1,485\$13,875
3496.625%0.000%\$1,280\$82\$1,198\$13,623
3506.625%0.000%\$1,280\$75\$1,205\$12,418
3516.625%0.000%\$1,280\$69\$1,211\$11,207
3526.625%0.000%\$1,280\$62\$1,218\$9,988
3536.625%0.000%\$1,280\$55\$1,225\$8,763
3546.625%0.000%\$1,280\$48\$1,232\$7,532
3556.625%0.000%\$1,280\$42\$1,238\$6,293
3566.625%0.000%\$1,280\$35\$1,245\$5,048
3576.625%0.000%\$1,280\$28\$1,252\$3,796
3586.625%0.000%\$1,280\$21\$1,259\$2,537
3596.625%0.000%\$1,280\$14\$1,266\$1,271
3606.625%0.000%\$1,278\$7\$1,271\$0
Year 30  \$15,358\$537\$14,821
Grand
Total
\$419,828 \$249,827 \$170,000

## Mortgage Calculator - Help

Amortization Schedule
The amortization schedule show you how monthly principal and interest payment and principal balances change over the life of your loan.
Floor Rate
Floor rate is the minimum interest rate for an adjustable rate mortgage (ARM).
Index Rate
Rate Adjustment on ARMs are based on the index rate, the margin, the adjustment schedule, interest rate caps, and floor rate specified in your loan documents. Index rates change over time. They should be published and widely available. Common indexes used for setting mortgage rates have include the Prime Rate, Libor (London Interbank Offer Rate) and U.S. Treasury Rates.
Interest
The portion of your mortgage payment that is due to the interest rate being applied to the principal balance. The Total Interest for a mortgage is the sum of all interest paid over the life of a loan.
Interest Only
Interest-only mortgages allow borrowers to make interest-only payments for a specific period of time. Required mortgage payments can be significantly lower during the interest-only period since the borrower is not required to pay down the principal balance during that time. However, the borrower is taking on more risk since the balance is not being paid down. Interest-Only Mortgages come in a wide variety of types, including both fixed and adjustable rate mortgages.
The interest rate changes on an adjustable rate mortage (ARM) during adjustment periods specified in your loan documents. Your interest rate may have a fixed period where it does not change followed by adjustements on a regularly scheduled basis. For example, the interest rate on a mortgage could be fixed for 2 years followed by adjustments every 6 months.
Interest Rate Caps
Limits how much your interest rate can be increased during each adjustment period for an ARM. The cap for the first adjustment period may be different than the cap on subsequent adjustments. There also may be a maximim overall cap on interest rate increases during the life of your loan.
Interest Rate Scenarios
To decide if an adjustable rate mortgage is right for you, you should how changes in interest rates will effect the mortgage. The adjustable rate mortgage calculator shows you how your payment changes in the best case where rates are set at the minimum for your mortgage, the worst case where rates are set at the maximum for your mortgage, and the stable case where rates remain constant for your mortgage.
Loan Amount
The initial principal balance or your mortgage at closing.
Margin
When an ARM adjusts the margin is added to the index rate to help determine your interest rate. Interest rate caps and the floor rate for your mortgage may limit how much your actual interest rate changes. The margin typically is fixed for the life of the loan. It should be clearly specified in your loan documents.
Payment Shock
Occurs when the required minimum payment for a mortgage increases significantly. This can occur on adjustable rate mortgage when interest rates rise sharply, on interest-only mortgages when the interest-only period ends, and on balloon mortgages when the balloon payment is due.
Principal
The portion of your mortgage payment that is used to pay down the current balance of your mortgage. The principal balance represents how much you owe on the mortgage.
Start Rate
The initial interest rate on an Adjustable Rate Mortgage.
Term
The amortization term is one of the key factors that determine your required mortgage payment. Your required mortgage payment for fully amortizing mortgages is the amount that would result in the mortgage being closest to being paid off by the end of the amortization term. Longer amortization terms result in lower required mortgage payments for fully amortizating mortgages, all other things being equal.