Balloon Payment Calculator
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What Is a Balloon Payment?
A balloon payment is the final amount due on a loan that is structured as a series of small monthly payments followed by a single much larger sum at the end of the loan period. The early payments may be all or almost all payments of interest owed on the loan, with the balloon payment being the principal of the loan. This type of loan is known as a balloon loan.
The balloon home mortgage loan became common in the years before the 2007-2008 financial crisis. It allowed people eager to buy a home to obtain a mortgage payment that they could afford, at least in the early years.
The balloon loan did not disappear with the financial crisis but is now more often used for business loans. A project can be financed with a loan that allows for minimal payments early on, with the balloon payment due only when the project is earning a return on the investment.
How to calculate balloon payment of a loan?
As a first step, we need to find the monthly fixed payment. For that, we can employ the following balloon payment formulas:
Pmt = (A × i × (1 + i)n) / ((1 + i)n – 1),
- Pmt – monthly payment;
- A – Loan amount;
- i – periodic interest rate; and
- n – number of periods.
When we find the monthly payment, we can compute the balance due after the term of a balloon loan.
B = (A × (1 + i)nb) – Pmt / i × ((1 + i)nb – 1),
- B – Balloon payment; and
- nb – Number of balloon loan periods.
How to use the balloon payment calculator - a balloon payment example
Finally, let’s see how the balloon payment calculator works with an example.
Let’s say that Jack found a house with a very competitive price of 100,000 dollars. Since he is planning to move to another city in 5 years, he decides to take a balloon mortgage with 30 years term, which has 7 percent interest rate. How much money should Jack sell his house for after five years to be able to make the last balloon payment mortgage?
After filling out our balloon payment calculator with the information in this example, we will receive all the necessary details immediately.
- Loan amount = $100,000;
- Amortization period = 30 years;
- Balloon payment after = 5 years; and
- Interest rate = 7%.
Jack will have to pay $665.30 over five years and then pay $94,131.59. This means Jack needs to sell the house above this amount.
You should consider the balloon payment calculator as a model for financial approximation. All payment figures, balances, and interest figures are estimates based on the data you provided in the specifications that are, despite our best effort, not exhaustive.
For this reason, we created the calculator for instructional purposes only. Still, if you experience a relevant drawback or encounter any inaccuracy, we are always pleased to receive useful feedback and advice.
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