How to Calculate a Second Mortgage's Interest-Only Payments

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An interest-only second mortgage provides a lot of flexibility about how much you pay each month. The minimum you have to pay will be the interest the loan accrues during the month. If you choose to pay more, the extra will go to pay down the balance on the loan. If the balance on your loan changes from month to month, so will the interest-only payment amount.

Step 1

Look up and note the current loan balance and the annual interest rate on your second mortgage. If your loan has an adjustable interest rate, it may be critical to find the current rate on the loan. You can get the latest loan information by either logging into the lender's website or calling the bank's customer service number.

Step 2

Divide the annual interest rate by 12. The result is your month interest rate. For example, if the annual rate is 9 percent, the monthly rate will be 0.75 percent. If your calculator doesn't have a percentage function, convert the rate to a decimal by dividing by 100. The decimal form of 0.75 percent is 0.0075.

Step 3

Multiply the current loan balance by the monthly interest rate. The result is the amount of your interest-only payment. For the example, using a $25,000 loan balance and multiplying by 0.75 percent, the payment would be $187.50.


About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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