1. What is Simple Interest Only Payment?

Simple interest only payments calculate just the interest due on a loan each period without reducing the principal balance. This is common in certain types of loans like bridge loans or some commercial loans.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (decimal)
• \( PMT \) — Monthly interest payment (USD)

Explanation: The payment is simply the principal multiplied by the periodic interest rate.

3. When to Use This Calculation

Details: Interest-only payments are typically used in short-term financing, investment property loans, or during construction periods before permanent financing begins.

4. Using the Calculator

Tips: Enter principal in USD and monthly interest rate as a decimal (e.g., 0.01 for 1%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is this different from amortizing loan payments?
A: Amortizing loans pay both principal and interest, reducing the balance over time. Interest-only loans maintain the same principal balance.

Q2: What happens at the end of an interest-only period?
A: Typically, the loan either converts to amortizing payments or requires a balloon payment of the full principal.

Q3: Is the interest rate annual or monthly?
A: This calculator uses the monthly rate. Divide annual rate by 12 to get monthly rate.

Q4: Are interest-only payments tax deductible?
A: For certain loans like mortgages, interest payments may be deductible (consult a tax professional).

Q5: What are the risks of interest-only loans?
A: Principal isn't reduced during interest-only period, and payments may increase significantly when amortization begins.