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Interest Only Payment Formula:
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An interest-only construction loan is a type of loan where the borrower pays only the interest during the construction period, typically making lower monthly payments until the construction is completed and the full principal repayment begins.
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: Accurate interest-only payment calculation is crucial for construction loan budgeting, cash flow management during the construction phase, and financial planning for the transition to full principal and interest payments.
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).
Q1: What is an interest-only construction loan period?
A: Typically ranges from 6-24 months, covering the construction phase before converting to a traditional mortgage.
Q2: How is the monthly interest rate calculated from annual rate?
A: Divide the annual interest rate by 12 (months). For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.
Q3: Are there additional costs with construction loans?
A: Yes, construction loans may include origination fees, inspection fees, and higher interest rates than traditional mortgages.
Q4: What happens after the construction period ends?
A: The loan typically converts to a standard mortgage where you begin paying both principal and interest.
Q5: Can I make principal payments during interest-only period?
A: This depends on the loan terms. Some lenders allow voluntary principal payments, while others may restrict them during the construction phase.