1. What is Monthly Interest Only?

Monthly interest only calculation determines the interest portion of a loan payment for one month, without reducing the principal balance. This is commonly used in interest-only loans or for understanding the interest component of regular loan payments.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Principal \) — Original loan amount or balance ($)
• \( Rate \) — Annual interest rate (as decimal, e.g., 0.05 for 5%)
• 12 — Number of months in a year

Explanation: The annual rate is divided by 12 to get the monthly rate, then multiplied by the principal balance.

3. Importance of Monthly Interest Calculation

Details: Understanding monthly interest helps borrowers evaluate loan costs, plan budgets, and compare different loan options. It's particularly important for interest-only loans where payments don't reduce principal.

4. Using the Calculator

Tips: Enter the principal amount in dollars and the annual interest rate as a decimal (e.g., 0.05 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest-only and principal+interest payments?
A: Interest-only payments cover just the interest charge, while principal+interest payments reduce the loan balance over time.

Q2: How does this differ from APR calculations?
A: This calculates simple monthly interest. APR includes fees and other loan costs for a more comprehensive cost measure.

Q3: When are interest-only payments used?
A: Common in some mortgages, bridge loans, and during construction periods when borrowers need lower initial payments.

Q4: Does this calculation work for compound interest?
A: No, this is for simple interest. Compound interest would require a more complex formula accounting for accumulated interest.

Q5: Why convert annual rate to monthly?
A: Most loans require monthly payments, so we need to calculate the portion of annual interest that applies to each month.