How To Calculate Interest Only Payment?

Is it loan amount times interest rate divided by 12?

I am being told that is how to calculate a "simple interest" payment, but most interest only payments are calculated using "compound interest".

Whats the difference?

Comments(1)

  • jermsalerms4th January, 2005

    That is the correct way to calculate an IO loan.

    Simple Interest - The interest rate is applied only to the original principal amount in computing the amount of interest.

    Compounding Interest - The interest rate is applied to the original principle and any accumulated interest.

    Most mortgage products are based in simple interest. If you are looking at a loan with compounding interest watch out because you will be paying more interest over the life of the loan.

    Check my profile for contact info if you need assistance

    [ Edited by jermsalerms on Date 01/04/2005 ]

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