Authors: Courtney Cardello (Bureau of Accounts Public Finance Section) and Tony Rassias (Deputy Director of Accounts)
G.L. c. 44, § 17 allows cities, towns and districts to issue temporary loans in advance of permanent loans renewable up to 10 years with principal paydowns due beginning after the second renewal year. Here are three examples on how to calculate the minimum principal paydown.
Example #1: A 20-year loan authorization, BAN renewable up to ten years from the date of the original loan, declining debt structure. Paydown equals BAN principal divided by 18 remaining years. Paydown begins after the second renewal year and the principal balance due is reduced in the fourth through tenth years by the same amount. In the following example and after ten years, $444,448 has been paid down and $555,552 remains to be financed. Annual interest due is not shown in this example.
Example #2: A five-year loan authorization, BAN renewable up to five years from the date of the original loan, declining debt structure. Paydown equals BAN principal divided by three remaining years. Paydown begins after the second renewal year and the principal balance due is reduced in the fourth and fifth years by the same amount. In the following example and at the end of five years, $100,000 has been paid and the BAN is extinguished. Annual interest due is not shown in this example.
Example #3: A ten-year loan authorization, BAN renewable up to ten years from the date of the original loan, level debt service structure, single interest rate. Multiply beginning balance by the interest rate for annual interest. Total debt service equals interest plus principal. Note that as interest decreases, principal increases. After year two, the beginning balance is reduced by the previous year’s principal paydown and the calculation is repeated through the tenth year. At the end of ten years, any remaining amount must be financed. In this example, the amount to be financed is $0.
For more information on borrowing, see IGR 2022-2 or contact your Financial Advisor.
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Editor: Dan Bertrand
Editorial Board: Sean Cronin, Scott Ditto, Janie Dretler, Jessica Ferry, Christopher Ketchen, Paula King, Jen McAllister, Brianna Ortiz and Tony Rassias
| Date published: | September 17, 2026 |
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