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# How is the periodic principal and interest payment in the Loan Terms section of the Loan Estimate and Closing Disclosure determined for interest only transactions?

For interest only non-construction transactions, the periodic principal and interest payment reflects the first regular payment, ignoring any irregular first payment that would occur due to long days or short days to first payment. For construction only transactions, because these values are estimates, the periodic principal and interest payment is calculated assuming one full period to the first payment.

While this applies across all variations of these types of transactions, the following example uses criteria for a non-construction interest only loan.

Table 1. Criteria for a Non-construction, Interest Only Loan
Field | Value
--- | ---
Amount Requested | $350,750
Interest Payment Frequency | Quarterly
Number of Interest Payments | 5
Funding Date | 07/04/2016
First Payment Date | 09/01/2016
Accrual Method | Actual/360
Fixed Rate | 5.5%

This specific transaction has a short period from funding date to first payment date. Therefore, the first payment is irregular ($3161.62) and is ignored. If there were to have been one full period to the first payment, the amount of payment 1 would have been $4929.99.

Table 2. Sample Amortization Schedule
1 | 09/01/2016 | 5.500 | 3,161.62 | 0.00 | 3,161.62 | 350,750.00
2 | 12/01/2016 | 5.500 | 4,876.40 | 0.00 | 4,876.40 | 350,750.00

The value that prints to Principal and Interest in the Loan Terms section is the first regular payment as reflected in the amortization schedule ($4876.40).

Changing the same transaction to Construction Only and keeping the other criteria the same, you will see an amount of $2464.99 printing to Principal and Interest in the Loan Terms section. This is not the first regular payment but instead reflects the amount of one full period to the first payment.

1. Construction transaction calculations are based on half of the loan amount
   - $350,750 / 2 = $175,375
2. Multiply that amount by the initial interest rate to calculate the amount of interest
   - $175,375 * .055 = $9645.625
3. Divide the amount of interest by the denominator of the accrual method selected to determine the per day (per diem) amount of interest
   - $9645.625 / 360 = $26.7934
4. Multiple the per diem by the number of days that equals one full period to the first payment. In our example, this would be 6/1/2016 to 9/1/2016 which is 92 days
   - $26.7934 * 92 = $2464.99 (rounded)