Adding an Interest Only Period to an Amortizing Loan
PrecisionLender allows you to price loans with an initial interest only period, during which the borrower makes no repayment of principal, followed by amortizing payment for the remainder of the term. Compared to a fully amortized loan, this results in smaller monthly payments during the interest only period and higher monthly payments afterword. Another way to think about an interest only period is that it's equivalent to adding a remaining balance of 100% for the duration of the interest only period.
Adding the interest only period to a loan within PrecisionLender is easy.
- Click the chevron icon () to the right of the amortization term to open the amortization popup (shown below).
- Set the desired length, in months, of the interest only period.
- The application will automatically compute the amortization schedule for the remaining term.
- There is no need to click "Add" under "Amortization Schedule" unless you wish to add additional customizations to the amortization schedule (see below).
Adding Custom Points to Create a Segmented Amortization Schedule
Another option within the Amortization popup is to add custom points on the amortization schedule to manually set the remaining principal balance at any point in time. This enables you to create a segmented amortization schedule in which the application calculates different monthly payments (of principal and interest) based on how much of the principal you want the borrower to pay off by a certain time. Please note that this is not a schedule of repays; rather, it indicates that by a specified point during the loan's term, you want the borrower to have paid down to a certain balance.
To do this, enter the month you would like to enter the remaining principal balance for and click "Add." This will add a point on the amortization schedule that you can set the remaining principal balance (% or $ amount) yet to be paid off by the borrower.
Shown below is an example:
First we add an adjustment point to the amortization schedule at 24 months.
The point is added where it would be on a linear amortization schedule. From here you can change the value of this point based on percentage or dollar amount of principal remaining to alter the amortization schedule.
This process can then be repeated to add as many points as needed to your amortization schedule as seen below. If you need to delete an entry, select the trashcan icon.