Written and professionally reviewed by the Ailon Financing Solutions team
Three names, three possible payment structures
The terms balloon, bolt and bridging describe loans where a large part of the debt remains until the end of the term. The important difference is not the marketing name, but the settlement schedule: what is paid every month, what is accumulated, whether the fund is linked and what is the exact amount that will be required at the deadline.
| structure | Payment during the period | Payment at the end | major risk |
|---|---|---|---|
| prominent | Usually monthly interest | the full fund | Need a large amount at one time |
| full balloon | Sometimes there is no payment | Principal and accrued interest | Cumulative interest and high final payment |
| mediation | according to the terms of the offer | A balance that is covered by a future source | Delay or decrease in the source of repayment |
Calculate the two return structures bBalloon loan calculator, outstanding and bridging. The calculator shows the monthly payment, the cumulative interest and the final payment without providing details.
How do you calculate the cost?
In simple terms, the monthly interest payment is the principal multiplied by the monthly interest. If the principal is NIS 500,000 and the annual interest is 6%, the monthly interest in a non-linked scenario is NIS 2,500. At the end of the period, the fund itself remains to be paid.
In a full balloon there is not necessarily a monthly payment. The interest may be added to the balance, so the final payment can be higher than the principal amount plus a simple addition of the interest. If there is a link to the index, the principal on which the interest is calculated may also increase.
When bridging finance may be appropriate
Interim financing may be suitable when there is a time gap between the purchase of a new property and the sale of an existing property, or when an amount is expected to be released with a clear date and source. The adjustment is not only due to the fact that the monthly payment is low. It depends on the certainty of the repayment source, the duration of the period, the collateral and the ability to bear an alternative scenario.
Before making a commitment, check the The full cost of purchasing the apartment, you The ability to finance and the effect of a change in interest rates through Interest rate change calculator.
Four tests that should not be skipped
- Source of payment: What is the expected amount, when is it available and what is the proof of this.
- Alternative scenario: What happens if the sale of the property is delayed or closed at a lower price?
- total cost: Interest, linking, commissions, insurances and extension or repayment costs.
- Final payment: What is the exact balance in each possible month for repayment, and not just on the scheduled date.
The connection to contractor transactions in deferred payment
The Bank of Israel warned of the risk in deferred payment operations and in outstanding or balloon loans in which the entrepreneur pays part of the interest. The relief at the beginning does not guarantee the ability to complete the transaction upon delivery. Equity, future financing ability and possible changes in the interest rate or the value of the property should be checked already at the time of signing.
Those considering a 20/80 structure can continue toThe contractor's transaction guide And20/80 deal calculator.
