The table below compares a $100,000 mortgage with and without an interest only option for 10 years. It is assumed that the borrower exercises the option every month during the 10 years.
The
borrower who makes the larger fully amortizing payment gradually reduces
the balance, and has repaid about $16,000 of it by the end of the 10th
year. The borrower who pays interest only does not begin to reduce the
balance until year 11.
Required
Payments on a $100,000 30-Year Mortgage at 6.25%, With and Without a
10-Year Interest-Only Option
|
|
Fully Amortizing Payment |
Interest Only Payment |
||||||
|
Pmt |
Interest |
Prin. |
Balance |
Pmt |
Interest |
Prin. |
Balance |
|
|
Mon |
First Year |
|||||||
|
1 |
615.72 |
520.83 |
94.89 |
99,905 |
520.83 |
520.83 |
0 |
100,000 |
|
2 |
615.72 |
520.34 |
95.38 |
99,810 |
520.83 |
520.83 |
0 |
100,000 |
|
3 |
615.72 |
519.84 |
95.88 |
99,714 |
520.83 |
520.83 |
0 |
100,000 |
|
4 |
615.72 |
519.34 |
96.38 |
99,617 |
520.83 |
520.83 |
0 |
100,000 |
|
5 |
615.72 |
518.84 |
96.88 |
99,521 |
520.83 |
520.83 |
0 |
100,000 |
|
6 |
615.72 |
518.34 |
97.38 |
99,423 |
520.83 |
520.83 |
0 |
100,000 |
|
7 |
615.72 |
517.83 |
97.89 |
99,325 |
520.83 |
520.83 |
0 |
100,000 |
|
8 |
615.72 |
517.32 |
98.40 |
99,227 |
520.83 |
520.83 |
0 |
100,000 |
|
9 |
615.72 |
516.81 |
98.91 |
99,128 |
520.83 |
520.83 |
0 |
100,000 |
|
10 |
615.72 |
516.29 |
99.43 |
99,029 |
520.83 |
520.83 |
0 |
100,000 |
|
11 |
615.72 |
515.77 |
99.95 |
98,929 |
520.83 |
520.83 |
0 |
100,000 |
|
12 |
615.72 |
515.25 |
100.47 |
98,828 |
520.83 |
520.83 |
0 |
100,000 |
|
|
Eleventh Year |
|||||||
|
121 |
615.72 |
438.74 |
176.98 |
84,060 |
730.93 |
520.83 |
210.10 |
99,790 |
At the end of the
interest-only period, the payment
is increased to $730.93. It is larger than the payment on the loan that
was fully-amortizing from the beginning because it must pay off the loan
over 20 years rather than 30.
