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Interest Only Payment Formula:
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Interest only payment with balloon is a loan structure where the borrower pays only the interest portion monthly, with the entire principal amount due as a lump sum (balloon payment) at the end of the loan term.
The calculator uses the interest only payment formulas:
Where:
Explanation: The monthly payment covers only the interest accrued, while the principal remains unchanged until the balloon payment at maturity.
Details: This payment structure provides lower monthly payments during the loan term, making it suitable for short-term financing, investment properties, or borrowers expecting future liquidity events.
Tips: Enter principal amount in currency, monthly interest rate as a decimal (e.g., 0.01 for 1%), and time in years. All values must be positive numbers.
Q1: What are the advantages of interest only payments?
A: Lower monthly payments, improved cash flow management, and flexibility for short-term financing needs.
Q2: What are the risks of balloon payments?
A: The borrower must be prepared to make a large lump sum payment at maturity, which requires careful financial planning.
Q3: When are interest only loans typically used?
A: Commonly used for bridge loans, investment properties, construction financing, and by borrowers with irregular income streams.
Q4: How is the monthly interest rate calculated from APR?
A: Divide the annual percentage rate (APR) by 12 to get the monthly rate. For example, 12% APR = 1% monthly rate (0.01).
Q5: Can the principal be paid down during the loan term?
A: Typically, the principal remains unchanged until maturity, but some loans may allow optional principal payments.