# Interest Only Loan

• Oct 2nd 2007, 06:03 AM
stentorian
Interest Only Loan
Hey guys, desperately need some assistance with the following, would be much appreciated.

Interest Only Loan, 10 year term, 7.5%pa comp monthly i, \$50,000 principle
Monthly repayments are \$322.92

I need to calculate what the monthly repayment would be if the interest rate rose by 3% to 10.75%pa at the 5 year mark.

Am I right to assume discounting?
Any help would be great, cheers!
• Oct 2nd 2007, 06:19 AM
TKHunny
Why is that tricky? You need the balance at the 5 year mark. Since you are paying interest only, the balance doesn't change from month to month. All you really need is the ratio of the interest rates.

322.92*(10.75/7.75) = ??
• Oct 2nd 2007, 06:19 AM
stentorian
re
I have attempted the question again.

Am I right to find the outstanding principle (19375.20) and then divide that by the s angle (.0089\60) = 46.33 which comes to a monthly payment of \$418.17.

Can anybody confirm this?
• Oct 2nd 2007, 11:14 AM
TKHunny
You must first explain to me why the Outstanding Principle is not \$50,000.

Iis it, or is it not, an Interest Only Loan?
• Oct 2nd 2007, 03:26 PM
stentorian
re
Shouldn't I account for the fact that interest would have accrued during the period for half of the principle, despite the fact that the principle is paid upon maturity?
• Oct 12th 2007, 12:16 PM
TKHunny
I would read the terms of the contract very carefully.