What is the initial payment for a 30 year fixed interest only loan of $200,000 at an interest rate of 6%?

What is the initial payment for a 30 year fixed interest only loan of $200,000 at an interest rate of 6%?

• A. $600/month
• B. $800/month
• C. $1,000/month
• D. $1,200/month

Answer: (C)

To determine the initial payment for a 30-year fixed interest-only loan of $200,000 at an interest rate of 6%, you start by focusing on how interest-only loans work. In this type of loan, the borrower only pays the interest on the principal balance for a specified period, which means the monthly payment will be based solely on the interest charged. The formula for calculating the monthly interest payment is: \[ \text{Monthly Interest Payment} = \frac{\text{Loan Amount} \times \text{Interest Rate}}{12} \] In this case, the loan amount is $200,000, and the annual interest rate is 6%. To find the monthly payment: 1. Convert the annual interest rate to a decimal: 6% = 0.06. 2. Calculate the monthly interest: \[ \text{Monthly Interest Payment} = \frac{200,000 \times 0.06}{12} = \frac{12,000}{12} = 1,000. \] Therefore, the initial monthly payment for this interest-only loan would be $1,000. Understanding this concept is crucial since it highlights how payments are structured in interest-only loans, allowing

To determine the initial payment for a 30-year fixed interest-only loan of $200,000 at an interest rate of 6%, you start by focusing on how interest-only loans work. In this type of loan, the borrower only pays the interest on the principal balance for a specified period, which means the monthly payment will be based solely on the interest charged.

The formula for calculating the monthly interest payment is:

[ \text{Monthly Interest Payment} = \frac{\text{Loan Amount} \times \text{Interest Rate}}{12} ]

In this case, the loan amount is $200,000, and the annual interest rate is 6%. To find the monthly payment:

1. Convert the annual interest rate to a decimal: 6% = 0.06.

2. Calculate the monthly interest:

[ \text{Monthly Interest Payment} = \frac{200,000 \times 0.06}{12} = \frac{12,000}{12} = 1,000. ]

Therefore, the initial monthly payment for this interest-only loan would be $1,000.

Understanding this concept is crucial since it highlights how payments are structured in interest-only loans, allowing