Calculate the Interest Only Mortgage You Qualify For and Connect with Top Lenders
Use the FREEandCLEAR Interest Only Mortgage Qualification Calculator to determine what size interest only mortgage you qualify for based on your net income and debt. When you submit your information we connect you with up to four leading lenders so that you can confirm your mortgage terms and compare multiple proposals to find the mortgage that is right for you. We also offer a version of this calculator that does not require personal information
Monthly Housing Payments
- Loan Type
Qualifying for an Interest Only Mortgage
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.
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 allows 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.
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.
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.
More FREEandCLEAR Mortgage Resources
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
Understand the downsides of an interest only mortgage including a potential significant jump in your payment when you are required to start paying principal
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
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