An Interest Only Promissory Note is utilized when parties wish to structure a loan with periodic interest payments but defer principal repayment until the end of the term. This arrangement is particularly common in commercial lending, real estate financing, and business expansion scenarios where initial cash flow preservation is important. The document, governed by Canadian law, must comply with federal legislation such as the Interest Act and provincial regulations regarding secured transactions and consumer protection. It includes essential elements such as principal amount, interest rate, payment terms, default provisions, and remedies, while ensuring compliance with Canadian usury laws and financial regulations. This type of note is especially useful for borrowers seeking lower initial payments or those expecting a future liquidity event to repay the principal.

1. Parties: Identifies the Lender and Borrower with their full legal names and addresses

2. Background: Brief context of the loan arrangement and acknowledgment of the debt

3. Definitions: Defines key terms used throughout the note including 'Interest Rate', 'Maturity Date', 'Payment Date', and 'Principal Amount'

4. Promise to Pay: The core obligation stating the principal amount borrowed and promise to repay with interest

5. Interest Rate: Specifies the interest rate, calculation method, and compounding frequency

6. Payment Terms: Details of interest-only payments including payment dates, method of payment, and application of payments

7. Principal Repayment: Terms of the balloon payment of principal at maturity

8. Events of Default: Lists circumstances that constitute default and consequences

9. Remedies: Lender's rights and remedies upon default

10. Prepayment: Terms and conditions for early repayment of principal

11. Governing Law: Specifies that Canadian law governs the agreement

12. Signatures: Execution block for all parties