1. What is an Interest Only Payment?

An interest only payment is a loan payment that covers just the interest charges for the period, without reducing the principal balance. These payments are typically lower than fully amortizing payments.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Balance \) — Current loan principal balance (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12, in decimal form)

Explanation: The calculation multiplies your current loan balance by the monthly interest rate to determine your interest-only payment amount.

3. When Are Interest Only Payments Used?

Details: Interest-only payments are common in certain mortgage products, bridge loans, and some student loans. They provide temporary payment relief but don't build equity.

4. Using the Calculator

Tips: Enter your current loan balance in USD and the annual interest rate as a percentage. The calculator will show your monthly interest-only payment amount.

5. Frequently Asked Questions (FAQ)

Q1: How is this different from a regular loan payment?
A: Regular payments include both interest and principal reduction, while interest-only payments cover just the interest charges.

Q2: What happens after the interest-only period ends?
A: Payments typically increase significantly as you must start paying both principal and interest, or sometimes the full balance becomes due.

Q3: Are interest-only loans a good idea?
A: They can be useful for short-term needs or investors, but carry risks as you're not building equity during the interest-only period.

Q4: Does this calculator work for all loan types?
A: It works for simple interest loans. Some loans may have additional fees or complex terms not accounted for here.

Q5: How often should I recalculate my payments?
A: Recalculate whenever your loan balance changes or if your interest rate adjusts (for ARMs or variable rate loans).