1. What is Interest Only Repayment?

Interest only repayment is a loan payment structure where the borrower pays only the interest charges for a specified period, without reducing the principal balance. This results in lower monthly payments during the interest-only period.

2. How Does the Calculator Work?

The calculator uses the interest only payment formula:

Where:

• \( P \) — Principal amount (currency units)
• \( R \) — Annual interest rate (%)

Explanation: The formula calculates the monthly interest payment by converting the annual rate to a monthly rate and applying it to the principal balance.

3. Importance of Interest Only Calculation

Details: Understanding interest-only payments is crucial for borrowers considering interest-only loans, as it helps them budget for the initial payment period and plan for when principal payments will begin.

4. Using the Calculator

Tips: Enter the principal amount in currency units and the annual interest rate as a percentage. Both values must be valid (principal > 0, interest rate ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: What are the advantages of interest-only payments?
A: Lower initial monthly payments, which can be beneficial for cash flow management or investment purposes.

Q2: What are the disadvantages of interest-only loans?
A: The principal balance doesn't decrease during the interest-only period, and payments will increase significantly when principal payments begin.

Q3: How long do interest-only periods typically last?
A: Interest-only periods usually range from 5-10 years, after which the loan converts to principal and interest payments.

Q4: Are interest-only loans suitable for everyone?
A: They are best for borrowers who expect their income to increase or plan to sell the asset before the interest-only period ends.

Q5: What happens at the end of the interest-only period?
A: The loan typically converts to a standard amortizing loan, resulting in higher monthly payments that include both principal and interest.