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.