1. What is an Interest-Only Loan With Balloon Payment?

An interest-only loan with balloon payment is a loan where the borrower pays only the interest for a set period, followed by a single large payment (balloon payment) of the entire principal at the end of the term.

2. How Does the Calculator Work?

The calculator uses these simple formulas:

Where:

• \( P \) — Principal amount (USD)
• \( r \) — Monthly interest rate (decimal)
• \( PMT \) — Monthly interest payment (USD)
• \( Balloon \) — Final principal payment (USD)

Explanation: The monthly payment is simply the interest on the principal, while the full principal amount is due at the end of the loan term.

3. When is This Loan Type Used?

Details: These loans are often used in commercial real estate, bridge financing, or by borrowers who expect a large sum of money (like an inheritance or bonus) at the end of the loan term.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate in percentage, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are the advantages of this loan type?
A: Lower monthly payments during the loan term, which can be helpful for cash flow management.

Q2: What are the risks?
A: The borrower must be prepared to make the large balloon payment at the end, which may require refinancing or selling the asset.

Q3: How is this different from a regular interest-only loan?
A: A regular interest-only loan may have no set repayment date or may convert to amortizing payments, while this type has a defined balloon payment date.

Q4: Are there prepayment penalties?
A: This depends on the loan terms - some may have penalties for early repayment.

Q5: Is this good for long-term financing?
A: Generally not recommended for long-term needs unless you have a clear plan for the balloon payment.