A mortgage is "interest only" if the scheduled monthly mortgage payment - the payment the borrower is required to make --consists of interest only. The option to pay interest only lasts for a specified period, usually 5 to 10 years. Borrowers have the right to pay more than interest if they want to.
If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal. The result is that the loan balance will remain unchanged. Interest Only Loans allow you the flexibility of investing your money where you wish, not just in your house.
Some Interest Only mortgages will also be adjustable rate mortgages (ARM). An Interest Only ARM will often have a period where the interest rate is fixed, and then it is adjusted annually. This calculator assumes that the interest rate for your Interest Only Mortgage remains fixed for the entire term.
