How interest-only payments work
Interest-only payment = loan balance × annual rate ÷ 12
Because none of the payment goes to principal, the balance stays the same and the whole amount is due at maturity. Some loans start interest-only and switch to amortizing payments: 2 years interest-only, then payments on a 30-year schedule, for example. To model that, set the interest-only period to fewer months than the term.
Examples
Fully interest-only: a $750,000 bridge loan at 10% for 24 months costs $6,250.00 a month, $150,000 in total interest, and the full $750,000 is due at month 24.
Interest-only then amortizing: change the interest-only period in the calculator to see how much the balloon drops once principal payments begin.
Who uses interest-only balloon loans
- Fix-and-flip investors, who repay from the sale. Try FlipCalculator.net for a full flip quote.
- Bridge borrowers, who buy or reposition a property and refinance into a long-term loan once it is stabilized.
- Construction and value-add projects, where income doesn’t exist yet.
- Commercial loans with partial interest-only, such as CMBS loans with 1–3 years of interest-only at the start.