Free interest-only calculator
Interest-Only Seller Financing Calculator
See what an interest-only period does to the monthly payment now, the amortizing payment later, the balloon balance, seller proceeds, and the buyer's property cash flow.
$2,250/mo for 2 years, then $2,698/mo.
Lower payments now. More principal later.
during the IO period
principal left at year 5
versus amortizing immediately
down + payments + balloon
The balance stays flat for the first 2 years. After that, payments begin amortizing on a 30-year schedule until the year-5 balloon.
Principal paid before balloon: $17,622The payment starts at $2,698/month and principal begins declining with payment one.
Balloon would be: $418,745Exploratory financing math only. Actual notes may define the post-IO amortization period differently, and taxes, servicing, closing costs, reserves, legal requirements, and deal-specific terms can change the economics.
The tradeoff
Interest only buys runway. It does not make the principal disappear.
Interest-only seller financing can lower the required payment during the first part of a deal because the buyer is paying interest without scheduled principal reduction. That can be useful when a property needs time for renovations, lease-up, rent growth, or another business-plan transition.
The tradeoff is straightforward: if principal is not being paid down during the interest-only period, more principal remains outstanding later. If the balloon date does not move, the balloon will generally be larger than it would have been if the note amortized from the beginning.
The interest-only payment is $2,250/month. When amortization begins, the payment is roughly $2,698/month under a 30-year amortization assumption.
How the interest-only payment is calculated
For a fully interest-only period with no scheduled principal paydown:
Monthly IO Payment = Seller-Financed Principal × Annual Rate ÷ 12
On a $450,000 note at 6%, that is $450,000 × 0.06 ÷ 12 = $2,250 per month.
What changes when amortization begins?
Once the IO period ends, the note may switch to a standard principal-and-interest payment. The exact amount depends on how the promissory note defines the amortization period.
This calculator treats the stated amortization period as the amortization schedule that begins after the interest-only period. That matches many negotiated seller-finance structures, but actual notes can be drafted differently. The payment terms in the signed documents control.
Why the balloon is usually larger with IO
Compare two otherwise identical notes with the same purchase price, rate, amortization, and balloon. One amortizes immediately. The other spends the first two years interest only.
The interest-only note has made fewer principal payments by the balloon date. The calculator's What does the IO runway cost? section shows that difference directly as extra principal remaining at the balloon and extra interest paid through the balloon.
Interest only can change property cash flow dramatically.
If the property produces $2,800 per month before debt service, a $2,250 IO payment leaves $550 per month before other unmodeled costs. If the later amortizing payment rises to $2,698, the same property leaves only $102 per month.
That payment step-up matters. A structure can look comfortable during the IO period and become tight as soon as amortization begins. This page therefore shows both cash flow during IO and cash flow after IO.
Interest-only period and balloon period are different.
A two-year interest-only period with a five-year balloon does not mean the note ends after two years. It means the scheduled payment structure changes after two years, while the remaining unpaid principal becomes due at the five-year maturity date.
If the interest-only period lasts all the way to the balloon, the principal may remain essentially unchanged until maturity, depending on the note language and whether any principal payments are required.
Use the full Deal Lab when you want to negotiate the structure.
Once you have an interest-only structure that looks plausible, open it in the full Seller Finance Lab to compare scenarios, test the property, see what the rate and amortization are worth, share the structure, and generate the deal PDF.
Carry the exact IO structure into the Deal Lab.
The calculator button preserves purchase price, down payment, rate, amortization, balloon, IO period, rent, and expenses.
FAQ
Interest-only seller financing questions
How is an interest-only seller financing payment calculated?+
During the interest-only period, the scheduled monthly payment is generally the seller-financed principal multiplied by the annual interest rate and divided by 12. Principal typically does not decline during that period unless the note says otherwise.
What happens after the interest-only period ends?+
A common structure is for payments to switch to an amortizing payment after the interest-only period. The exact payment depends on the note terms, including whether the stated amortization period begins after the interest-only period or is measured from closing.
Does interest-only seller financing increase the balloon?+
Compared with amortizing immediately, interest-only financing usually leaves more principal outstanding at the same balloon date because no principal is paid during the interest-only period.
Why would a buyer use an interest-only period?+
An interest-only period can reduce debt service during the early years of a deal, which may preserve cash flow while renovations, lease-up, or other business-plan work is underway. It also delays principal paydown, so the later balance and balloon can be larger.
Does this calculator tell me whether interest-only seller financing is a good idea?+
No. It only models the financing math. Property performance, reserves, refinance risk, legal requirements, taxes, servicing, closing costs, and the exact promissory-note language still need separate review.