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Only Interest Payment Formula:
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An interest-only loan payment calculates the monthly payment amount that covers only the interest portion of a loan, without reducing the principal balance. This type of payment structure is common in certain mortgage and loan products.
The calculator uses the interest-only payment formula:
Where:
Explanation: The formula multiplies the principal amount by the monthly interest rate to determine the interest payment due each month.
Details: Calculating interest-only payments helps borrowers understand their minimum payment obligations during the interest-only period of a loan, which is important for budgeting and financial planning.
Tips: Enter the principal amount in currency units and the monthly interest rate as a decimal (e.g., 0.005 for 0.5%). Both values must be positive numbers.
Q1: What is an interest-only loan period?
A: An interest-only period is a specified timeframe during which the borrower only pays interest on the loan, without reducing the principal balance.
Q2: How does interest-only payment differ from amortizing payment?
A: Interest-only payments cover only the interest accrued, while amortizing payments include both principal and interest, gradually paying down the loan balance.
Q3: When are interest-only loans typically used?
A: They are often used in certain mortgage products, business loans, and construction loans where lower initial payments are desirable.
Q4: What happens after the interest-only period ends?
A: After the interest-only period, payments typically increase significantly as they must cover both principal and interest to pay off the loan within the remaining term.
Q5: Are there risks with interest-only loans?
A: Yes, the main risk is payment shock when the interest-only period ends, and the borrower may face much higher payments. There's also no equity build-up during the interest-only period.