Payment Interest Only

What are the monthly payments on a $110000 interest only 20-year mortgage at an interest rate of 2%?

Solution:

◆ Interest only is a keyword in this question.

◆ Payments on interest-only loan are calculated using the following formula:

A =(P * I)

● A - monthly payment
● P - amount borrowed
● I – effective interest rate per payment

In this question, P = $110,000 and I = (1+ (0.02)/12)^1 - 1= (0.02)/12 =0.00166667

According to above the equation, A =(P * I)= $110,000 * 0.00166667 = $183.333

▶ The answer is $183 a month

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