Formula to calc. semi-annual int. only pmt. with balloon in 10 yr

[tmac]

Does anyone know the formula to calculate semi-annual interst only payments
with a balloon in 10 years? I thought it was IPMT, but it does not appear
correct. I thought the interest payment would remain the same for each
semi-annual payment until the principal balloon payment is made in year ten.

 

[pdberger]

tmac --

Maybe I don't understand the problem. Let's say it's a $100,000 loan in
which you're paying back the interest (let's say 10%), every six months,
until the prinicipal is due back, after 10 years.

If that's the case, then you owe 1/2 year's worth of interest every six
months, which would be 5% of $100k or $5,000. At the end of the 10 years,
you'd pay back the original $100k principal.

I'm probably not understanding the situation, though. How is it different
from the above?

 

[joeu2004]

Does anyone know the formula to calculate semi-annual interst only payments
with a balloon in 10 years?

If the payment is truly "interest only", then the payment is simply
the balance of the loan times the applicable interest rate. For semi-
annual payments, the "applicate interest rate" is the annual rate
divided by two.

For example, for an interest-only loan of $10,000 at 5%, the semi-
annual payment is 10000*5%/2, which is $250. After 10 years, you
would have paid $60,000 in interest (total payments), and your last
payment would be $10,000 in addition to the interest ($250).

I thought it was IPMT, but it does not appear
correct. I thought the interest payment would remain the same for each
semi-annual payment until the principal balloon payment is made in year ten.

In a truly "interest only" loan, the balloon payment is the loan
amount.

If that is not how you understand the structure of the loan that you
have in mind, it would be prudent for you to post the complete terms
of the loan, including actual or representative numbers. I suspect it
might not be a true "interest-only" loan.

IPMT and all similar financial functions presume an amortized loan
where the payment is large enough to cover periodic interest as well
as reduce some of the principal such that the balance of the loan is
reduced to the "fv" (usually zero) over the term of the loan. If "fv"
is not an argument of the function -- e.g. CUMIPMT -- then it is
presumed to be zero.