During the repayment period you pay principle + interest.

Pay all towards principle on my primary home, use HELOC for investment financing2.

There is a $54,563.41 balloon payment on principle due April 1, 2008. 

EMTs, emergency room staff, doctors, administration, medication the cost is out of sight driving up all our medical expences.Everything about this class of individual is self inflicted.

These make it very easy to calculate your (1) Pre-tax cash flow (also Cash on cash, CoC), (2) After tax cash flow (based on your effective tax rate), (3) After tax cashflow + pay down on principle and (4) After tax cashflow + pay down + appreciation (being the only subjective metric) Appreciation can vary hugely between different markets.

Has your bank given you an idea of what they will require in terms of principle reduction? 

In this situation, would I be paying $46,741 plus the principle on the "loan"?

Not sure who to turn to or what to do since the owner will only commit on principle to give me 120 days due diligence and to secure financing.

Purchase price: $120,000 Sale price: $145,000 Our first home .... with extra principle payments and investing all tax returns i to this house we were able to pay it off in 7 years.

Hang in there though and push the rental to as many sights as you can.