Fully Amortized, Fix Rate Mortgage

• Loan Amount (Principal): $100,000

• Annual Percentage Rate (APR): 4%

• Monthly Payment: $527.84

• Loan Term: 30-year amortization, 10-year balloon

• Principal Payoff at Maturity: $71,358.95
  

This is a loan that I would use for a rental property I am going to hold long-term. Although the monthly payment remains consistent, the interest portion of the total payment decreases, while the principal amount increases with each payment. An amortization schedule will show how changes in the terms above would affect the payment. The balloon term refers to when the loan comes due or matures (10 years in this case). In typical mortgages, there are usually no balloons, you make payments until the end of the amortization period. 

Interest Only with Monthly Payments

• Loan Amount (Principal): $100,000

• Annual Percentage Rate (APR): 6%

• Annual Interest: $6,000

• Monthly Payment: $527.84

• Loan Term: 3-year balloon

• Principal Payoff at Maturity: $100,000
  
  

In this example, we are not paying down any of the principal amount, we are only making interest payments. This means that when we go to pay off the loan in 3 years, we will still owe $100,000, as opposed to the amortized loan, we are paying down the principal balance each month. This type of loan would be ideal if I were going to do some work to the property and refinance into a long-term, amortized loan. This allows me to possibly borrow some money for repairs and then pay the lender’s principal and interest off when I close a new loan from a bank or another private lender. As you can see from the numbers, the monthly payment is also less than the amortized loan, even though the interest rate is higher. This helps with my cash flow in the short term.

Interest-Only with Accrued Interest 

• Loan Amount (Principal): $100,000

• Annual Percentage Rate (APR): 8%

• Annual Interest: $8,000

• Monthly Payment: $0

• Loan Term: 12–month balloon

• Principal Payoff at Maturity: $108,000
  
  

This type of loan I would normally use for a property that we are fixing and flipping for a profit. As you can see, the interest rate is higher due to not receiving monthly payments. This would help me from a cash flow standpoint, since the property does not have produce any recurring income. However, I am happy to pay the higher rate so I can pay all the interest and principal back from my profits, when I sell the property. This loan has a shorter maturity because it is a shorter project and will be paid off within a year.