Fixed Rate Mortgage vs. Interest Only Mortgage

A fixed rate mortgage has the same payment for the entire term of the loan. Use this calculator to compare a fixed rate mortgage to Interest Only Mortgage.

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Definitions

Fixed Rate Mortgage
A fixed rate mortgage has the same interest rate and monthly payment throughout the term of the mortgage. The payment is calculated to payoff the mortgage balance at the end of the term. The most common terms are 15 years and 30 years.

Interest Only Mortgage
An Interest Only mortgage only requires monthly interest payments. Since you are not paying any principal, this can lower your monthly payment. However, since your mortgage's principal balance is not decreased, you will have a balloon payment at the end of the mortgage's term. 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.

Mortgage amount
Expected balance for your mortgage.

Term in years
The number of years over which you will repay this mortgage. The most common mortgage terms are 15 years and 30 years. Please note that for the Interest Only Mortgage you will have a balloon payment for the entire principal balance at the end of the loan term.

Interest rate
Annual interest rate for each mortgage type.

Prepayment
A monthly prepayment of principal you would like to apply to your Interest Only Mortgage balance.

Monthly payment
Monthly principal and interest payment (PI) for the Fixed Rate Mortgage. This is an interest only payment for an Interest Only ARM.