The balloon is usually the largest single figure in a financing and it is the one people arrive without. It is not a penalty and not a fee: it is the balance the schedule has not reached yet, and on the maturity date it has to be refinanced, paid off, or the property sold.
| Borrowed | $6,300,000 |
|---|---|
| Principal repaid over the term | $714,630 |
| Balance at maturity | $5,585,370 |
| Total paid over the term | $4,641,747 |
| Of which interest | $3,927,118 |
The same loan with and without it. Interest only is not free money: nothing is repaid while it runs, so the balance stays higher for the rest of the term and every month of interest after that is charged on the larger balance.
| Over the full term | With 24 months interest only | Amortizing from day one | Difference |
|---|---|---|---|
| Interest paid | $3,927,118 | $3,819,330 | $107,788 |
| Balance at maturity | $5,585,370 | $5,340,895 | $244,475 |
What you buy with it is cash flow in the years a business plan needs it: a lease-up, a renovation, a tenant taking occupancy. That can be worth both of those numbers. It is a trade, and it should be made as one.
Payment, the split between interest and principal, and the balance at the end of each year.
Monthly payments at the coupon divided by twelve, which is the commercial convention. The payment is level and each month's interest is charged on the balance outstanding. Nothing here models an origination fee, a rate floor, an index reset, escrow, reserves, or a prepayment penalty, and a real term sheet usually carries several of those.
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A payment is one line of an underwriting. Altyst reads the documents, builds the income the payment has to come out of, sizes the debt on the lender tests, and carries the balance to the exit.