Interest Only Loan pays interest only in the begining of the loan tenor. Then pays principle and interest.
does this mean that the first period is like a grace period but with charge?
The definition of a grace period in insurance or loans is the time period given after the due date that would allow the loan/insurance holder to pay before the obligation lapses/penalties occur. Your use of grace period doesnt quite match.
An interest only loan allows you to keep the principal the same while paying only the interest. In a CFAI problem, I see they provide interest only questions and then a balloon payment (full principal due) at a later date such as terminal date – I assume this is done to simplify the question to keep the math simple.
I got that the first interval of the repayment period is an interest only payment, but later on, while the amount be principal plus interest that is calculated based on the total of the principal amount or will the interest only part will be deducted ?
Most bonds represent interest-only loans: interest is paid periodically, then the principal is paid at maturity.