1. The Anatomy of Payment Shock (The Math)
Assuming a standard $100,000 balance at today's dynamic rate (Prime 6.75% + Bank Margin), your interest-only payment might seem manageable. But what happens in Month 121?
📊 Draw Period (Interest-Only)
At 7.25%, a $100,000 balance costs roughly $604.17/month in interest-only payments.
⚠️ Repayment Period (Principal + Interest)
When you enter the 20-year amortization period, the payment recalculates to $790.38/month.
💥 Payment Shock
This is a non-negotiable $186 monthly jump (+30.8%) overnight.
2. Visualizing the Truth: Nominal Payment vs. Real Burden
3. The Inflation Buffer: Why the Jump Isn't a Disaster
While the nominal payment jump looks scary, inflation and income growth reduce the real burden over time.
📊 Burden Ratio Analysis
- Year 1 (Draw Period):
- If you earn $10,000/month, the $604 payment is a 6.0% Burden Ratio.
- Year 11 Shock (Repayment Period):
- When the payment jumps to $790 in Year 11 (after standard 3% income growth), it is only 5.9% of your new income ($13,439).