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Interest-Only EMI Formula:
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An interest-only mortgage payment calculates only the interest portion of a loan for a specified period, without paying down the principal balance. This results in lower initial payments but requires principal repayment later.
The calculator uses the interest-only formula:
Where:
Explanation: The formula multiplies the principal amount by the monthly interest rate to calculate the interest-only payment amount.
Details: Understanding interest-only payments helps borrowers plan their finances during the interest-only period of their mortgage and prepare for higher payments when principal repayment begins.
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 valid (principal > 0, rate between 0-1).
Q1: What is an interest-only mortgage period?
A: A specified time frame (typically 5-10 years) during which the borrower pays only the interest on the loan, not the principal.
Q2: What happens after the interest-only period ends?
A: The loan converts to a traditional amortizing mortgage, requiring payments that include both principal and interest, resulting in higher monthly payments.
Q3: Who benefits from interest-only mortgages?
A: Borrowers who expect higher future income, investors planning to sell the property before principal payments begin, or those needing lower initial payments.
Q4: What are the risks of interest-only mortgages?
A: Risk of payment shock when principal repayment begins, potential for negative amortization if property values decrease, and longer time to build equity.
Q5: How do I convert annual interest rate to monthly?
A: Divide the annual percentage rate by 12 (number of months) and convert to decimal (e.g., 6% annual = 0.06/12 = 0.005 monthly).