Conventional loans and/or Mortgages typically have a set or fixed interest rate on the outstanding balance that remains constant for the term of the mortgage. Initially the borrower is paying mainly interest and little is applied to the amount owed.  Each month the amount of interest paid decreases and the amount applied to the principal increases discouraging the borrower from retiring the note by paying it off.

Scaling Interest loans, commonly called suicide or punisher loans are often used in lease/rent option or land contract deals.  The objective of the loan's design is the opposite of a conventional loan.  It gives the buyer a break at the onset of the loan and encourages him to pay it off in full early.  Instead of the interest rate being fixed, the interest amount paid each payment is set and remains constant during the term of the obligation.  As the principal amount owed decreases with each payment, the interest rate on the balance increases.  When the outstanding balance gets low enough the effective interest rate will be considerably greater than that of most lenders; thereby, punishing the borrower and encouraging him pay off or refinance the note; thereby, killing it.

Calculator Instructions:    Enter the amount to be borrowed in the principal block and select the month and year of the first payment.   Enter the total monthly payment and then either the amount of it to be interest or rent or the annual amount of interest or the lease amount.  You can also enter a starting interest rate instead of an interest amount.  Checking the box labeled "force time" will automatically decrease or increase the monthly payment to make the term of the loan equal to the number of years entered.  Return to Calculator