# Simulate an interest-only loan

Interest-only, bullet and bridge loans are three types of fixed-rate loans where the
principal is repaid in a single lump sum (balloon payment) at the end. Any interim payments
cover only the interest.

Use
the following data entry form to specify the terms of the loan.

## Guide to using this form

• **Payment frequency** – For annual, semi-annual (half-year), quarterly, monthly, and semi-monthly (twice-monthly)
payments, the loan calculation is performed per 12, 6, 3, 1, or ½ month period, respectively,
and the loan duration should be a whole multiple of its corresponding period (for example,
for quarterly payments, the loan duration may be 3 months or 6 months, but not 5 months).

• **Payment frequency** – For weekly or bi-weekly (15-day) payments, the loan
calculation is performed assuming that 1 year consists of 52 weeks with 7 days each, or of
26 periods with 14 days each. The actual payment period will be shorter than the one entered.
The loan duration should be a 3-month multiple.

• ** Compound interest rate / simple interest rate** – For most cases, the
simple interest rate should be used. Interest rate types and calculation methods vary according
to country and use, and occasionally according to the purposes of the loan (e.g., property
vs. personal). If the simulation results do not match the payment schedule provided by your
bank, then it may be necessary to use the other type of interest rate. For a detailed discussion
of the various interest rates, see Wikipedia
Interest.

• ** First payment due date** – Dates entered are truncated to the last day
of the month, but the date as entered will be used for subsequent months. For payment periods
consisting of multiple months, the first payment due date will be used for the other due
dates. For example, a first payment set at 2-30 will lead to due dates on 2-28, 3-30, 4-30,
etc.