Posted by JohnBoy on February 17, 2002 at 15:37:01:

If it was a credit line at 5.75% interest only, the annual interest on $85k would be $4,887.50. Divide that by 12 to get your monthly monthly payment which would be $407.29 interest only. At the end of a year you would still owe $85k since you only paid interest on that.

If the loan was amortized then it depends on the number of years the loan is amortized over.

If you paid $10k of the principal back in addition to the interest only payment, then you would take $75k x 5.75% = $4,312.50 annual interest, divided by 12 months = $359.37. This would be your new interest only payment each month until you paid more of the principal back.

I’m confused about Prime Rate ? - Posted by Shirley E.

Posted by Shirley E. on February 17, 2002 at 04:40:50:

Hi,

Pardon me if this question is stupid, but a friend says he has a credit line that’s prime + 1. What in the world is Prime rate and what would the monthly payment be on an 85,000 loan ?

Re: I’m confused about Prime Rate ? - Posted by Dave T

Posted by Dave T on February 17, 2002 at 11:19:02:

Prime Rate is the interest rate that a bank charges its “best” customers.

Credit line loans are usually interest only, meaning that the monthly payment due is the accrued interest for the loan. Principle repayment during the term of the loan is usually voluntary, with the only stipulation that the loan must be repaid in full at the end of the loan term – sometimes as short as one year.

The minimum monthly payment is computed by multiplying the outstanding loan amount by the monthly interest rate. In your example, with a prime rate of 4.75%, the interest charged is one point higher (plus one) or 5.75%. Divide 5.75% by 12 to get the monthly interest rate. If the borrower wants to pay down the loan balance, just add more to the minimum monthly payment.

Re: I’m confused about Prime Rate ? - Posted by phil fernandez

Posted by phil fernandez on February 17, 2002 at 11:11:14:

Prime rate is an interest rate that banks charge. It’s kind of a bench mark that banks use to determine interest rates on everything from credit cards, equity lines of credit, working lines of credit, car loans to variable rate mortgage loans etc.

Often you will see as in your example Prime plus 1%. Right now Prime is at 4.75%. So Prime plus 1% would equal an interest rate on that loan at 5.75%. My guess is that this particular loan will adjust over a short period of time. Perhaps quarterly or so depending on the particular loan.

Shirley - The prime rate is 4.75 right now. You can find this on http://forecasts.org/interest-rate/prime-interest-rate-yield.htm Also, as far as calculating a payment, I don’t know how to do that on a normal calculator. You’ll have to find a website that offers mortgage calculators to figure the payment out. You could type something like mortgage calculators on your “address” bar and you’ll get a ton of results. Hope this helps.