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Interest Only Loan Formula:
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The Interest Only Loan Calculator calculates the monthly interest-only payment for mortgages using the simple formula EMI = P × R, where P is the principal amount and R is the monthly interest rate.
The calculator uses the interest only loan formula:
Where:
Explanation: This formula calculates the interest-only payment, meaning you only pay the interest portion each month without reducing the principal balance.
Details: Calculating interest-only payments helps borrowers understand their minimum monthly obligations during the interest-only period of a mortgage, which is important for budgeting and financial planning.
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?
A: An interest-only mortgage allows borrowers to pay only the interest portion of the loan for a specified period, after which they must start paying both principal and interest.
Q2: How is monthly interest rate calculated from annual rate?
A: Divide the annual interest rate by 12. For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.
Q3: What are the advantages of interest-only payments?
A: Lower initial monthly payments, which can be beneficial for borrowers with variable income or those expecting higher future earnings.
Q4: What are the risks of interest-only mortgages?
A: The principal balance doesn't decrease during the interest-only period, and payments will increase significantly when the principal repayment period begins.
Q5: How long do interest-only periods typically last?
A: Interest-only periods typically range from 5-10 years, after which the loan converts to a fully amortizing payment structure.