Interest-only example
On a $100,000 balance at 6.00%, the monthly interest is $500 under a simple monthly periodic calculation. A $500 payment covers interest but reduces no principal.
| Payment | Interest due | Payment | Principal change | Ending balance |
|---|---|---|---|---|
| 1 | $500 | $500 | $0 | $100,000 |
| 2 | $500 | $500 | $0 | $100,000 |
Negative amortization example
If the payment is only $400 while $500 of interest is due, the unpaid $100 is added to the balance. The next period begins at $100,100, so the interest amount can also increase.
What happens when the interest-only period ends
The remaining principal must be repaid over fewer years, paid as a balloon, or refinanced. That can create a substantial payment increase. Build a second schedule beginning with the balance at the conversion date and the remaining amortization term.
For a final balance due at maturity, see the balloon-payment schedule example.
Schedule warning signs
- The payment is less than the interest shown for the period.
- The ending balance is higher than the starting balance.
- Capitalized or deferred interest appears in the loan terms.
- A payment cap prevents the payment from rising with the rate.
- The schedule contains a large recast or balloon after the introductory period.
Build and compare the schedule
Use the free amortization calculator for a standard schedule. Use the registered Windows amortization software when you need to edit individual dates, payments, rates, or notes and save the revised loan.