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How to Calculate an Interest Only Mortgage or Loan
Tutorial 14

An "interest only" mortgage or loan is a debt with a periodic payment that is equal to the interest due. At the end of the term, the entire principal balance is due. There are variations that allows for some initial number of payments to be interest only payments followed by a set number of principal and interest payments. The Ultimate Financial Calculator can handle any variation of interest only calculations.

This example applies to our online Ultimate Financial Calculator. The C-Value! program for Windows works in a similar way and has a few more features including the ability to save your work.

All users should work through the first tutorial to understand basic concepts about the calculator.

This tutorial discusses how the "Cash Flow Options" are used to create 5 year loan with the first year's payments paying only the accrued interest. To create an amortization schedule with 12 initial interest only payments, follow these steps:

  1. Set "Schedule Type" to "Loan"
    • Or click the [Clear] button to clear any previous entries.
    • The top two rows of the grid will not be empty
    • Delete the 2nd row by selecting it and clicking on the [Delete] button
  2. Set "Rounding" to "Adjust last amount to reach "0" balance" by clicking on the {Settings} {Rounding Options}
  3. In the header section, make the following settings:
    1. For "Calculate Method" select "Normal".
    2. Set "Initial Compounding" to "Daily".
    3. Enter 5.625 for the "Initial Interest Rate".
  1. In row one of the cash flow input area, create a "Loan" series
    1. Set the "Date" to November 1, 2016
    2. Set the "Amount" to 94,000.00
    3. Set the "# Periods" to 1
      • Note: Since the number of periods is 1, you will not be able to set a frequency. If a frequency is set, it will be cleared when you leave the row
  1. Move to the second row. Initially, the regular payment amount is unknown.
    1. Select "Payment" for "Series"
    2. Set the "Date" to December 1, 2016
    3. Set the "Amount" to "Unknown"
    4. Set the "# Periods" to 12
  1. Display "Options for Selected Cash Flow Series" window
    1. Click on the second row's "Cash Flow Options"
    2. Select the "Interest Only" tab at the top of the window.
    3. Be sure "Activate Interest Only series for the currently highlighted event" is selected
    4. Click [Save Changes]. Notice that the "Amount" column will now say "See Schedule".
Interest only option
Interest Only Option
  1. Move to the third row of the cash flow input area. Initially, the regular payment amount is unknown.
    1. Select "Payment" for "Series"
    2. Set the "Date" to December 1, 2017
    3. Set the "Amount" to "Unknown"
    4. Set the "# Periods" to 48

Your screen will look like this:

Interest only loan
12 interest only payments followed by 48 principal and interest payments
  1. Calculate the unknown. The result is $2,191.47
Interest only loan result
Interest only loan result
  1. To view an amortization schedule showing the initial interest only payments, click on the [Schedule] button.
Interest only loan schedule
12 interest only payments

An interest only loan can be structured so the interest only payments occur at any time during the term. And while interest only loans are not as popular as they once were, the calculations can easily be handled with the Ultimate Financial Calculator.

Back to the online Ultimate Financial Calculator.