Interest Only or Amortized Mortgage.
Interest-only or amortized mortgage is a very common question. Firstly, interest-only mortgages typically exist in the private mortgage world. You may require a short-term private mortgage and have the option between an interest-only or amortized mortgage.
Below you will find an illustration of a monthly payment for a $350,000 mortgage @ 3% interest calculated semi-annually:
10 Year Amortization: $3,376.63
15 Year Amortization: $2,413.91
20 Year Amortization: $1,937.84
25 Year Amortization: $1,656.36
30 Year Amortization: $1,472.11
You’ll notice that you will need to make double the monthly payment in order to pay off this mortgage 15 years sooner (10 years vs. 25 years).
The monthly payment on a $350,000 mortgage at 6.50% interest-only calculated monthly is $1,895.83 – this is less than the monthly payment for $350,000 at only 3% amortized over 20 years.
By the way, the same $350,000 at 6.50% calculated semi-annually and amortized over 20 years is $2,591.75 a month.
That is a difference of $695.92 per month which equates to $8,351.04 over 12 months.
Note that a 20-year amortization would reduce the principal by $8,912.07 over the 12 months.
As much as it always boils down to cost and sense…. there’s a bit of a gut decision to some choices. You might prefer to pay $8500 less from your pocket over the year, than pay-down $8K in principal.
To each their own!
Contact us anytime for more information.
DV Capital Corporation #13186