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Mortgage Calculator: Fixed Rate vs. Interest Only Calculator

Millions of people are in pursuit of the American Dream of home ownership and how they choose to manage the task varies from person to person. While some consumers may favor a fixed rate mortgage for the consistency provided by the equal payment amounts during the duration of the loan, others may prefer selecting an interest only loan because of the lower monthly payments. Either way, prior to deciding between the two, crunching the numbers on the Mortgage Marvel Fixed Rate vs. Interest Only mortgage calculator can provide some valuable insight to the decision.

An interest only loan will allow consumers to pay only the interest due on a home loan as opposed to the payment of both interest and principal associated with the monthly payment of a fixed rate mortgage. With an interest only loan, mortgage holders can have lower monthly payment amounts, the ability to buy a more costly home with smaller payments and to customize their amortization schedule. Consumers that can accept the fact that the outstanding home mortgage principal balance does not decline with each interest only loan payment, may prefer this type of loan option.



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GLOSSARY

Fixed Rate Mortgage
A mortgage in which the monthly principal and interest payments remain the same throughout the life of the loan. The payment is calculated to payoff the entire mortgage balance at the end of the term. The most common mortgage terms are 30 and 15 years. With a 30-year fixed rate mortgage, monthly payments are lower than they would be on a 15 year fixed rate, but the 15 year loan allows individuals to repay a loan twice as fast and save more than half the total interest costs.

Interest Only Mortgage
An interest only mortgage only requires mortgage holders to make monthly interest payments. Since there are no contributions going towards the principal, consumers can enjoy lower monthly payments. However, since the mortgage's principal balance will not decrease, there will be a balloon payment due at the end of the mortgage's term. Some interest only loans can also be adjustable rate mortgages (ARM). An interest only ARM will often have a period where the interest rate is fixed, and then it will adjust annually. Mortgage Marvel's Fixed Rate vs. Interest Only mortgage calculator assumes that the interest rate for the interest only mortgage remains fixed for the entire term.

Mortgage Amount
In relation to a Mortgage Marvel mortgage calculator, this is the original or expected balance of a mortgage.

Term in Years
The number of years it will take to repay a home loan. The most common mortgage loan term lengths are 30 years and 15 years. For balloon mortgages, the most common terms are 5 years and 7 years. After that time period concludes, individuals will need to either refinance or pay off the remaining balance. For interest only loans, consumers will have a balloon payment due for the entire principal balance at the end of the loan term.

Interest Rate
The rate charged in order to borrow a lender's money. Interest takes into account the risk and cost to the lender for a loan. The interest rate depends on the going market rate and how many discount points are paid up-front. An adjustable rate mortgage's interest is a variable rate determined by the index and the lender's margin.

When the term is used in conjunction with a Mortgage Marvel mortgage calculator, the term specifically applies to the annual interest rate charged on the mortgage.

Prepayment
Any amount that is paid to reduce the principal balance, not the interest, of a home loan before the maturity date.

Monthly Payment (P&I)
The monthly principal and interest payment. In relation to a Mortgage Marvel Fixed Rate vs. Interest Only mortgage calculator, the term refers to payment amount for the fixed rate mortgage or the interest only mortgage.


Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We can not and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.