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Loan Payment Formula:
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This calculator computes monthly interest-only payments with a balloon payment at maturity. It's commonly used for short-term loans or bridge financing where only interest is paid monthly, with the principal due at the end of the term.
The calculator uses the following formulas:
Where:
Explanation: The monthly payment covers only the interest on the principal. At maturity, the borrower pays back the original principal plus all accumulated interest.
Details: Accurate loan payment calculation is crucial for financial planning, budgeting, and understanding the true cost of borrowing. It helps borrowers assess affordability and compare different loan options.
Tips: Enter the principal amount in currency, monthly interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive numbers.
Q1: What is an interest-only loan with balloon payment?
A: This loan structure requires paying only the interest monthly, with the full principal amount due as a single "balloon" payment at the end of the loan term.
Q2: When are these types of loans typically used?
A: They are commonly used for short-term financing, bridge loans, or situations where the borrower expects to have a large sum of money available at the end of the term.
Q3: What are the advantages of this loan structure?
A: Lower monthly payments during the loan term, which can improve cash flow for borrowers who expect to have funds available for the balloon payment.
Q4: What are the risks associated with balloon payments?
A: The main risk is the borrower's inability to make the large balloon payment at maturity, which could lead to default or forced refinancing.
Q5: How does this differ from amortizing loans?
A: Unlike amortizing loans where both principal and interest are paid monthly, this structure defers principal repayment until the end of the term.