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Interest Only Payment Formula:
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Interest only home loan payment is a type of mortgage payment where you only pay the interest portion of the loan for a specified period, without reducing the principal balance. This results in lower monthly payments during the interest-only period.
The calculator uses the interest-only payment formula:
Where:
Explanation: The formula calculates the monthly interest payment by multiplying the principal amount by the monthly interest rate.
Details: Calculating interest-only payments helps borrowers understand their minimum payment obligations during the interest-only period, plan their finances, and compare different loan options.
Tips: Enter the principal amount in dollars 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 home loan?
A: An interest-only home loan is a type of mortgage where you only pay the interest for a set period (typically 5-10 years), after which you start paying both principal and interest.
Q2: What are the advantages of interest-only loans?
A: Lower monthly payments during the interest-only period, potential tax benefits (consult a tax advisor), and flexibility for investors or those with irregular income.
Q3: What are the disadvantages?
A: You're not building equity during the interest-only period, payments will increase significantly afterward, and you may face refinancing risk.
Q4: How do I convert annual rate to monthly rate?
A: Divide the annual interest rate by 12. For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.
Q5: Who should consider interest-only loans?
A: Investors expecting property value appreciation, borrowers with irregular income patterns, or those who need temporary payment relief but can handle higher payments later.