1. What is the Interest-Only Payment?

The Interest-Only Payment calculation determines the monthly payment amount for loans or mortgages where only the interest is paid each month, with the principal amount remaining unchanged.

2. How Does the Calculator Work?

The calculator uses the Interest-Only Payment formula:

Where:

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

Explanation: This simple formula calculates the interest portion of a loan payment by multiplying the principal amount by the monthly interest rate.

3. Importance of Interest-Only Payment Calculation

Details: Understanding interest-only payments is crucial for borrowers considering interest-only loans, as it helps in budgeting and financial planning during the interest-only period of a loan.

4. Using the Calculator

Tips: Enter the principal amount in currency 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).

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only loan?
A: An interest-only loan is a type of loan where the borrower pays only the interest for a certain period, after which they start paying both principal and interest.

Q2: When are interest-only payments used?
A: Commonly used in mortgages, student loans, and some business loans during the initial period of the loan term.

Q3: What are the advantages of interest-only payments?
A: Lower initial payments, improved cash flow management, and potential tax benefits (in some jurisdictions).

Q4: What are the risks of interest-only loans?
A: The principal doesn't decrease during the interest-only period, and payments can increase significantly when the principal repayment begins.

Q5: 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.