1. What is Interest Only Payment Calculation?

Interest only payment calculation determines the monthly payment amount for construction loans where only the interest portion is paid during the construction period, with the principal repaid at the end of the loan term.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal loan amount (currency)
• \( R \) — Monthly interest rate (decimal)
• \( EMI \) — Monthly interest payment (currency)

Explanation: This calculation provides the interest-only payment amount that must be paid monthly during the construction phase of the loan.

3. Importance of Interest Only Payments

Details: Interest-only payments are common in construction loans as they allow borrowers to manage cash flow during the construction period when the property isn't generating income yet.

4. Using the Calculator

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.

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only construction loan?
A: A loan where you only pay the interest during the construction phase, with the principal due at the end of the construction period or converted to a traditional mortgage.

Q2: How do I convert annual interest rate to monthly?
A: Divide the annual interest rate by 12. For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.

Q3: Are interest-only payments tax deductible?
A: For investment properties, interest payments are typically tax deductible. Consult a tax professional for specific advice.

Q4: What happens after the construction period?
A: The loan typically converts to a traditional mortgage where you pay both principal and interest, or the principal becomes due in full.

Q5: What are the advantages of interest-only payments?
A: Lower monthly payments during construction, better cash flow management, and ability to focus funds on the construction project.