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Interest Only Mortgage Qualification Calculator

Interest Only Mortgage Qualification Calculator

Calculator developed by

Use our Interest Only Mortgage Qualification Calculator to determine what size interest only loan you qualify for based on your net income and monthly debt expenses. Borrowers can typically qualify for a larger mortgage with an interest only loan because the initial monthly payment is lower than other types of loans that require you to pay both principal and interest. We recommend that you evaluate multiple scenario to understand the loan amount you can afford based on your personal profile and different interest only period rates.

Watch our Interest Only Mortgage Qualification Calculator "How To" video

Inputs

Indicates how frequently you are paid
Please Select How Often Are You Paid
Your income per pay period after subtracting taxes and other deductions. Also known as take-home pay
Please Enter Net Income Per Pay Period
Total of monthly payments for all non-housing related debt such as credit card, auto and student loans
Please Enter Total Monthly Debt Payments
Interest rate during the interest only period of the mortage, typically the first 3, 5, 7 or 10 years of the mortgage
Please Select Interest Rate
The type of mortgage your looking to obtain
Please Select Mortgage Type
Submit Valid Info to Compare Lenders and Save Money!When you provide valid personal info we may connect you with lenders which enables you to compare mortgage proposals and find the mortgage that is right for you. Click calculator for a version of this calculator that does not require personal info
 
Please Enter Your First & Last Name
Please Enter a Valid First Name
Please Enter a Valid Last Name
 
Please Enter Your Phone Number
Please Enter a Valid Phone
Please Enter Your Email
Please Enter a Valid Email
Your credit score to the best of your knowledge
Please Select Credit Score

Outputs

The monthly mortgage payment during the initial, interest only period of the mortgage. Mortgage payments during this periodn do NOT include principal
The output provided represents an estimate only. Property tax and insurance rates vary by state, county and property
The mortgage balance at the end of the interest only period is the same as the mortgage balance at the beginning of the loan because you have only paid interest and no principal

How Our Interest Only Mortgage Qualification Calculator Works

Qualifying for an interest only mortgage is different than for other types of loans.  Interest only loans involve more risk for borrowers but also offer benefits including being able to afford a larger loan amount. Our Interest Only Mortgage Qualification Calculator uses the following inputs to determine the loan you qualify for:

Net Income.  This is your income after deductions such as taxes, social security and medicare, also known as your take home pay.   The more money you make, the higher the mortgage amount you can afford.

Monthly Debt Payments.  This figure includes payments for credit cards as well as car, student and personal loans but excludes your current housing expense such as your rent or mortgage payment.  Input your monthly debt payment and not your current loan balance. For example if you pay $525 per month on a car loan with a $5,000 balance, you include $525 in the monthly debt payments field.  The lower your debt, the higher the mortgage amount you can afford.

Interest Only Period Interest Rate.  This is the rate you pay during the interest only period of the mortgage.  For example, for a five year interest only loan, you pay the the interest only period rate for the first five years of mortgage. Please note that you interest rate is subject to change and potentially increase when the interest only period expires.

Our calculator uses your inputs to determine the mortgage you can afford and other helpful outputs.

Interest Only Mortgage You Qualify For.  This is the mortgage you can afford based on your income, debt and the interest only period rate.  As demonstrated by our calculator, with an interest only mortgage, you can afford a larger loan amount which means your mortgage dollars stretch further.

Interest Only Period Mortgage Payment. This is your payment during the initial interest only phase of the loan.  The lower your mortgage rate, the lower your payment. This payment does not include principal. Your payment usually increases when the mortgage converts into an amortizing loan and you are required to start paying principal.

Total Monthly Housing Expense.  This includes your monthly mortgage payment plus property tax and homeowners insurance so you can understand the total cost of owning a home.  Property tax and insurance vary based on property value and location. Borrowers can typically afford higher priced homes with an interest only mortgage so other housing expenses tend to be higher.

Mortgage Balance at End of the Interest Only Period.  The principal loan balance at the end of the interest only period is the same as your original mortgage amount which highlights that you do not pay down the loan initially.  This is another reason why your payment increases when the loan starts to amortize.

A significant increase in your monthly mortgage payment is the primary risk of an interest only loan so you should be sure to understand this downside.

Qualifying for an Interest Only Mortgage

1

Interest Only Mortgage Basics

With an an interest only mortgage you pay only interest and no principal during the first three, five, seven or ten years of the mortgage, which is called the interest only period, and then loan converts into an amortizing mortgage and you pay both principal and interest for the remainder of the mortgage, and the interest rate is subject to change.  Interest only mortgages are often referred to as 3/1, 5/1, 7/1 or 10/1 Interest Only ARMs (IO ARMs) with the first number indicating the length of the interest only period and the second number indicating how frequently the interest rate can change during the adjustable rate period.  For example, with a 7/1 interest only mortgage, you pay only interest at a fixed interest rate for the first seven years of the loan and then you pay both interest and principal plus your mortgage rate is subject to change and potentially increase on an annual basis for the remaining 23 years of the loan.

2

You Can Afford a Larger Mortgage

Your monthly payment during the interest only period of an interest only mortgage is lower because you do not pay any principal.  Additionally, the interest rate for an interest only mortgage during the interest only period is typically lower than the rate for a 30 year fixed rate mortgage.  A lower interest rate and monthly payment allow you to qualify for a larger mortgage amount as compared to other types of mortgages such as a fixed rate or adjustable rate mortgage (ARM).  The ability to afford a larger mortgage is one of the key benefits of an interest only loan.  Use our Interest Only Mortgage Qualification Calculator to understand the higher loan amount you can afford.

3

Interest Only Mortgage Borrower Qualification Requirements

Some lenders apply tougher mortgage qualification requirements for interest only mortgages.  For example, lenders may apply a lower loan-to-value (LTV) ratio requirement for interest only mortgages which means borrowers are required to make a larger down payment or have more equity in their homes.  Some interest only mortgage lenders also require borrowers to have higher credit scores.  Additionally, following the collapse of the real estate market, many lenders stopped offering interest only mortgages due to new mortgage regulations and other considerations.  Borrowers may need to contact multiple lenders to find one that offers interest only mortgages and borrowers should be sure to  understand the lender's qualification requirements before moving forward with their mortgage.

4

Risks of an Interest Only Mortgage

Although interest only mortgages offer benefits such as a lower monthly payment and the ability to qualify for a larger mortgage, borrowers should be sure to consider the risks of an interest only mortgage.  Risks of an interest only mortgage include the possibility that your monthly mortgage payment spikes in the future.  When your mortgage changes from an interest only loan to an amortizing mortgage, your mortgage payment typically increases because you start paying both interest and principal plus your interest rate can increase which would cause your payment to jump even more.  Interest only mortgages are typically better suited for borrowers with a higher risk appetite or who are going to sell their homes and pay off their loan before the end of the interest only period.  Borrowers who prefer certainty and financial security should not select an interest only mortgage due to the potential risk of payment shock.  Our Interest Only Mortgage Mortgage Qualification Calculator highlights that you have paid down none of you principal loan balance at the end of the loan's initial interest only period.

5

Pay Down the Loan on Your Schedule

Just because an interest only mortgage does not require you to pay principal during the initial phase of the loan does not mean you cannot do it. Many borrowers elect to pay down their principal loan balance by adding extra payments or making a lump sum payment annually or semi-annually.  This is why interest only loans are well suited for applicants with significant income fluctuations or who earn a meaningful portion of their income from bonuses or commissions.  The flexibility of an interest only mortgage enables these borrowers to pay down principal on a schedule that better matches the timing and amount of their earnings.  

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Current Mortgage Rates as of August 24, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.
While we pride ourselves on the quality and breadth of the FREEandCLEAR mortgage calculators please note that they should be used for informational purposes only. Our calculators rely on assumptions by us and inputs and assumptions provided by you, which may be inaccurate. The outputs from our calculators are estimates only and should not be used as the sole basis for making any financial decisions. Always consult multiple financial professionals when determining the mortgage size and program that is appropriate for you.

More FREEandCLEAR Mortgage Resources

Mortgage Guides

Interest Only Mortgage Basics

Review our in-depth overview of how an interest only mortgage works including key program terms, benefits of an interest only mortgage and helpul examples

Resources

Risks of an Interest Only Mortgage

Understand the downsides of an interest only mortgage including a potential significant jump in your payment when you are required to start paying principal

Interest Rates

Interest Only Mortgage Rates

Review interest rates for only mortgages based on interest only period length, loan-to-value (LTV) ratio and other factors.  Comparing proposals from multiple lenders is the best way to save money on your interest only mortgage

Programs

What Mortgage Program Is Right for Me?

Compare the pros and cons of an Interest Only Mortgage to other mortgage programs such as a fixed rate or adjustable rate mortgage (ARM) to select the program that is right for you

Sources

Interest Only Mortgage: https://www.fdic.gov/consumers/consumer/interest-only/index.html

About the calculator developer

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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