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How To Calculate a Balloon Amount
Tutorial 7

Calculate balloon payment for a mortgage or loan due after a series of regular payments. When the periodic payments is not large enough to fully amortize a loan in the time allotted, the final payment will be larger than the periodic payment. The final payment, in this case, is known as a balloon payment. This tutorial illustrates the setup to solve this financial question.

Note: Asking the questions "What it the balloon payment at period 48?" and "What is the remaining balance at period 48?" are two different questions and a financial calculator should calculate two different results. The former question is asking what the payment amount due is at period 48 including the accrued interest. The latter question is asking what is the loan balance after the payment has been made and there is no accrued interest due. Many financial calculators on the web frankly get this wrong.

This example applies to our online     Ultimate Financial Calculator. The     C-Value! program for Windows works in a similar way and has a few more features including the ability to save your work.

All users should work through the first tutorial to understand basic concepts about the calculator.

To create a loan schedule when the balloon payment amount is unknown, follow these steps:

  1. Set "Schedule Type" to "Loan"
    • Or click the [Clear] button to clear any previous entries.
    • The top two rows of the grid will not be empty
    • Delete the 2nd row by selecting it and clicking on the [Delete] button
  2. Set "Rounding" to "Open balance — no adjustment" by clicking on the {Settings} {Rounding Options}
  3. In the header section, make the following settings:
    1. For "Calculate Method" select "Normal".
    2. Set "Initial Compounding" to "Monthly".
    3. Enter 6.75 for the "Initial Interest Rate".
  1. In row one of the cash flow input area, create a "Loan" series
    1. Set the "Date" to July 1, 2016
    2. Set the "Amount" to 365,000.00
    3. Set the "# Periods" to 1
      • Note: Since the number of periods is 1, you will not be able to set a frequency. If a frequency is set, it will be cleared when you leave the row
  1. Move to the second row of the cash flow input area. Select "Payment" for the "Series" type. For this example, we will assume we want to create a schedule for a mortgage that has a balloon payment which is due after 5 years (at the 60th monthly payment). We will also assume that the monthly payment is calculated based on a 30-year (360 monthly payments) loan.
    1. Set the "Date" to August 1, 2016
    2. Set the "Amount" to "Unknown" by typing "U"
    3. Set the "# Periods" to "360". This sets the calculator to calculate the payment as if the payment were based on a 30-year loan.
Balloon payment initial setup
First calculation - find the regular payment amount
  1. Calculate the unknown. The result is $2,367.38.
Balloon payment initial calculation result
Regular periodic payment
  1. Calculate the final balloon payment amount
    1. Change the 360 number entered in the 2nd row for "# Periods" to "60"
    2. Move to the third row of the cash flow input area. Select "Payment" for the "Series"
    3. Set the date to "August 1, 2021" if it isn't already (end of the 5th year)
    4. Set the "Amount" to "Unknown"
    5. Set the "# Periods" to "1"
Balloon payment second calculation setup
Second calculation - find the final balloon payment amount
  1. Calculate the unknown. The balloon payment due will be $344,573.94.
Balloon payment result
Final payment - the "Balloon"
  1. To see a detailed amortization schedule showing the monthly payment allocated between principal and interest as well as the final balloon payment amount, click on the [Schedule] button on the button bar.
Balloon payment schedule
Amortization schedule with final balloon payment amount
  1. For a visualization of a balloon payment loan, click on the [Charts] button
Balloon payment chart
Chart clearly showing the final balloon payment broken down into interest and principal

Variation: Rather than have the calculator calculate the payment amount, you can enter your own payment amount. Instead of entering "Unknown" for the regular payment amount in the first calculation; enter the payment amount you prefer. Set the number of payments to 60. Then skip to calculating the balloon payment amount in step 7.

Balloon payment & custom payment
User specified regular payment of $2,500.

The Ultimate Financial Calculator will easily calculate a loan's balloon payment if one is required. The balloon can be calculated regardless of how complex the periodic cash flow. Be careful if comparing with other financial calculators which may mistakenly use the remaining balance as the balloon payment. They are wrong.