Keeping Track of an Interest Only

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February 20, 2006

"I have an interest-only ARM on which I make principal payments as I am able. My problem is that I don’t know exactly where I am in paying off the mortgage. When will it pay off if I keep my principal payments at their current level, or how much additional I would have to pay to pay off by some specified period. Do you have anything that will help me?"

One of the nice things about a mortgage on which you make the fully-amortizing payment is that you know that if you keep at it, your balance will hit zero in the terminal month. When you take out an interest-only (IO), in contrast, you can lose sight of where you are, especially if the IO is an ARM on which the rate can change.

I have received so many letters about this that I finally bit the bullet and developed an IO spreadsheet, which can be used for both fixed and adjustable rate mortgages. This is it.

Keeping Track of Payments on Interest-Only (IO) Mortgages

The spreadsheet allows you to see at a glance how a principal payment impacts the balance, the interest payment in the following month, and the fully amortizing payment. The last is important, because it is what you are obliged to pay when the IO period ends.

Like all my spreadsheets, this one can be downloaded onto your computer so you can maintain a permanent record close to home.