Interest-only loan was quietly resetting my principal balance each year

Took out a $350k interest-only commercial loan for my laundromat in Phoenix back in 2022. Thought I was being smart keeping payments low. But after 18 months I noticed my payoff amount wasn't dropping at all. Turns out the fine print had an annual recalculation clause that reset the principal to the original balance every January. My accountant spotted it during tax prep. She asked why my interest deductions were still based on the full $350k. Felt like an idiot. Anyone else get burned by these hidden reset clauses in IO loans?

2 comments

2 Comments

caleb_ross121mo ago

Did your loan docs mention anything about "annual re-amortization" or was it buried deeper than that? My buddy had a similar issue with a hotel loan in Scottsdale and it took him a year to figure out what was happening.

sam_murphy391mo ago

My buddy's loan in Phoenix had that clause hidden in a 30-page addendum labeled "cash flow management." The payment jumped $800 a month after year two and he had no idea until the bank sent a statement. Did you catch exactly how many times they could re-amortize over the life of the loan, or was it tied to something specific like a DSCR floor? I'm asking because I've seen banks pile those recalculations on top of rate adjustments, and it doubles the total interest if you're not watching.