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what is an interest rate only loan? what is balloon payment?

what is an interest rate only loan? what is balloon payment?

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Answer #1

A interest rate only loan is one in which the repayment consists of only interest payment and the principal amount remains unchanged during the life of the loan.

A balloon payment is one in which the final payment of the loan on the maturity date consists of a big payment. As mentioned above during the life of the interest only loan, only interest payments are made. To payoff the loan on the maturity date, a final large payment is made which covers for the principal amount as well.

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