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