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A $50,000 interest- only mortgage loan is made for 30 years at a nomial interest rate of 6...

Question:

A $50,000 interest- only mortgage loan is made for 30 years at a nomial interest rate of 6 percent. Interest is to be accrued daily, but payment is to be made monthly. Assume 30 days each month.


a. What will the monthly payment be on such a loan?

b. What will the loan balance be at the end of 30 years?

c. What is the effective annual rate on this loan?

Interest-only Loans

An interest-only loan requires that all accrued interest be paid at the end of each period. No payment is made on the principal, so at the end of the loan the remaining balance is the same as it was at the beginning of the loan.

Answer and Explanation:

Part 1: Monthly payment

For an interest-only loan, each month starts with the same balance (the principal), and at the end of the month all accrued...

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Loan Types: Pure Discount, Interest-Only & Amortization

from Finance 101: Principles of Finance

Chapter 6 / Lesson 6
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