This calculator helps you determine the monthly payment of an interest-only loan. It's ideal for borrowers who want to know the exact interest they will pay each month.
Data Source and Methodology
All calculations are based on standard interest-only loan formulas and verified by financial experts for accuracy.
The Formula Explained
For an interest-only loan, the monthly payment is calculated using the formula:
Monthly Payment = Loan Amount × (Interest Rate / 100) / 12
Glossary of Terms
- Loan Amount: The total amount borrowed.
- Interest Rate: The annual interest rate applied to the loan.
- Loan Term: The duration over which the loan is expected to be repaid.
How It Works: A Step-by-Step Example
Consider a loan amount of $100,000 with an interest rate of 5% for a term of 5 years. The monthly payment calculation would be:
Monthly Payment = 100,000 × (5 / 100) / 12
Monthly Payment = $416.67
Frequently Asked Questions (FAQ)
What is an interest-only loan?
An interest-only loan is a type of loan where you only pay the interest for a certain period, after which you pay both interest and principal.
How do I calculate interest-only payments?
Interest-only payments can be calculated using the formula: Payment = Loan Amount × Interest Rate.
Are interest-only loans risky?
Interest-only loans can be riskier than traditional loans as they don’t reduce the principal balance, potentially leading to higher overall costs.
Can I pay more than the interest on an interest-only loan?
Yes, many lenders allow additional payments to reduce the principal balance, which can lower future interest payments.
What happens when the interest-only period ends?
Once the interest-only period ends, you need to begin repaying both principal and interest, which will increase your monthly payments.