Interest-Only With Additional Payments

If you take out an interest only loan and then make additional payments, you might be able to save yourself money in the long run. If you take out a 30-year loan for $250,000 with a five percent interest rate, for example, the monthly payment would be about $1,041.67. This means you will pay $375.000 in interest at the end of the loan term.

If you pay an extra $50 dollars per month, however, your average monthly payment will not be much more at only $1,043.97. At the end of the loan period, you will have paid $357, 828.02 in interest. Since your extra payment will get your interest paid off sooner, you will save $17,171.98 in interest by paying an extra $50 dollars each month. This will reduce the balance of your $250,000 loan to $232,000, which will result in $18,000 in loan appreciation.

DISCLAIMER: There is NO WARRANTY, expressed or implied, for the accuracy of this information or it’s applicability to your financial situation. Please consult your own financial advisor.