How to use the balloon payment calculator
- Enter the loan amount and the interest rate from your loan terms.
- Enter the amortization term. This is the number of years the payment is figured over, as if the loan would be paid off on that schedule.
- Enter how many years pass before the balloon is due. It must be shorter than the amortization term.
- Read the monthly payment, the balloon amount and how much interest you pay before it comes due. The yearly table shows the balance falling each year.
Formula
Payment = P x r x (1 + r)^n / ((1 + r)^n - 1)
r = annual rate / 12, n = amortization term in months
Balloon = unpaid balance after the payments made before the due date
Total cost = payments made + balloon
Each month the interest is the balance times r, rounded to the cent, and the rest of the payment reduces the balance. The balloon is the balance left on the due date.
Worked example
A $300,000 loan at 7% is set up on a 30 year schedule, so the payment is $1,995.91 a month. The balance is due in full after 7 years.
After 84 payments you have paid $167,656.44, of which $141,098.35 is interest. The balloon is $273,441.91, which is about 91% of the original loan. Very little principal is paid off in the early years, so most of the loan is still owed when the balloon arrives.
What a balloon loan is
A balloon loan has small regular payments that are based on a long schedule, followed by one large payment at the end of a shorter term. The lender is not offering a 30 year loan. It is offering a short loan whose payments are calculated as if it were longer. The low payment is the attraction, and the large final payment is the cost.
Planning for the payment
People usually pay a balloon by refinancing, selling the property or the asset, or paying cash from savings. Each plan has risks. Rates may be higher when you need to refinance, a sale price may be lower than expected, and a refinance can be refused. Run the numbers at a higher rate in the refinance calculator and compare the full schedule in the amortization schedule calculator.
Interest only balloon loans
Some balloon loans are interest only, so the balloon equals the original amount. This tool assumes principal is paid down on the schedule you enter. For an interest only version, use the interest only loan calculator.
Assumptions and limits
- The rate is fixed for the whole period, and the interest is calculated monthly on the unpaid balance.
- Payments are made on time and no extra payments are made.
- Taxes, insurance, fees and prepayment penalties are not included.
- The payment is rounded to the cent. The loan terms you sign decide the real numbers.
Frequently asked questions
How is the balloon payment calculated?
Find the level payment for the amortization term, then follow the balance month by month until the due date. What remains is the balloon.
Why is the balloon so large when I make payments every month?
Early payments on a long schedule are mostly interest. Over the first several years only a small share of each payment reduces the balance, so most of the loan is still owed.
Can I avoid paying the balloon in one lump?
Often by refinancing or selling before the due date. Whether the lender will refinance depends on your credit, the value of the property and the rates at that time.
What is the difference between the amortization term and the balloon date?
The amortization term sets the size of the payment. The balloon date is when the remaining balance is due. The balloon date is always earlier.