1. What is Interest-Only Loan Payment?

Interest-only loan payment calculates the monthly payment for a line of credit where only the interest is paid each month, and the principal remains unchanged. This is common in certain types of credit arrangements and interest-only mortgage periods.

2. How Does the Calculator Work?

The calculator uses the simple interest-only formula:

Where:

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

Explanation: The calculation multiplies the principal amount by the monthly interest rate to determine the interest payment due each month.

3. Importance of Interest-Only Calculation

Details: Understanding interest-only payments helps borrowers plan their cash flow, especially during interest-only periods of loans. It's crucial for budgeting and financial planning with lines of credit.

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 loan?
A: An interest-only loan requires the borrower to pay only the interest for a specified period, after which principal payments begin or the loan must be repaid.

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

Q3: When are interest-only payments used?
A: Commonly used in lines of credit, interest-only mortgages, and during construction loans where principal repayment is deferred.

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

Q5: Can I pay more than the interest-only amount?
A: Yes, most lenders allow additional principal payments, which can reduce the overall interest cost and loan term.