A borrower takes out a $100,000 interest-only mortgage at an annual rate of 5% for the first 5 years of a 30-year loan. What is the approximate monthly interest-only payment during the first 5 years?

Correct answer: $416

The monthly interest-only payment is calculated as: ($100,000 × 5%) ÷ 12 = $5,000 ÷ 12 ≈ $416. No principal is included in this payment. After the interest-only period ends, the borrower must repay the full $100,000 principal over the remaining term, resulting in a higher payment — approximately $537/month for a fully amortizing payment over 30 years at 5% on the same balance. $537 represents the fully amortizing payment, not the interest-only payment. $333 and $267 do not correspond to any standard calculation on this loan.