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Balloon loan - a whimsical name don't you think for a potentially risky financial product?

What is a balloon loan?

Wikipedia defines a balloon loan or mortgage as a loan "which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size."

This Balloon Loan Calculator will not only calculate the final balloon payment, it will also help you structure a loan to meet your exact needs.

Check out these additional loan scenarios:

  • Want to know what periodic payment will result in a specific final balloon amount? This calculator will calculate the regular payment.
  • Or do you need to set the regular payment to an agreed upon, but nontraditional amount before calculating the balloon? This calculator is capable of doing that calculation as well.
  • Or do you have a budget for both the periodic payment and the balloon payment and you want to know how much you can borrow? This calculator can use your inputs to calculate the loan amount.
  • Or do you want to calculate the periodic payment using say a 30-year term while the balloon is computed using a 7-year term? Yup, you can do that calculation too. See "Doing the Two-Step" below
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Using the Balloon Loan Calculator

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As mentioned, a balloon loan is a loan that has its regular periodic payment calculated using one term (say 30 years) when the last payment is due sooner (say in 7 years).

If you do not know the amount of the regular loan payment, then we must calculate it before we can calculate the final balloon amount.

Example: Assume you are considering a mortgage for $146,500. You want the monthly payment calculated based on a 30-year loan, but you'll pay the balance after 72 months.

Doing the Two-Step

Step 1: Enter:

Amount of Loan?: $145,500.00
Annual Rate?: 4.5000%
Balloon Due at Payment? (#): 360
Periodic Payment?: $0.00
Final/Balloon Payment (can be 0)?: $0.00

When you enter "0" for both "Periodic Payment" and "Final/Balloon Payment," you are setting up the calculator to calculate a level payment for the entire term of the loan. That is the final payment will not be a balloon payment.

Click "Calc" and here are the results. $737 is the "regular" payment amount for a 30-year loan. (The final payment gets rounded by less than $2.00 or less than $0.01 per each regular payment.)

Periodic Payment?: $737.23
Final/Balloon Payment (can be 0)?: $735.27

Step 2: Now to calculate the balloon payment amount, with the balloon due after six years, set the calculator as follows:

Amount of Loan?: $145,500.00
Annual Rate?: 4.5000%
Balloon Due at Payment? (#): 72
Periodic Payment?: $737.23
Final/Balloon Payment (can be 0)?: $0.00

Click "Calc," and this is the balloon that will be due in the final month of the sixth year if the debtor makes payments based on an assumed term of 30 years:

Final/Balloon Payment (can be 0)?: $130,433.50
Amortization schedule
Amortization schedule showing final balloon payment.

If that's what you wanted to know - what the balloon payment amount will be for a loan, then you're finished.

But with this calculator, it's possible to do more. You can structure a loan, just the way you want it.

Other scenarios - very flexible!

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Example 2: Pick the balloon payment amount and calculate the periodic payment:

Amount of Loan?: $145,500.00
Annual Rate?: 4.5000%
Balloon Due at Payment? (#): 72
Periodic Payment?: $0.00
Final/Balloon Payment (can be 0)?: $100,000.00

Result:

Periodic Payment?: $1,110.73

Example 3: Pick any periodic payment amount:

Amount of Loan?: $145,500.00
Annual Rate?: 4.5000%
Balloon Due at Payment? (#): 72
Periodic Payment?: $2,000.00
Final/Balloon Payment (can be 0)?: $0.00

Result:

Final/Balloon Payment (can be 0)?: $27,541.94

Example 4: Pick your payments and see what you can borrow:

Amount of Loan?: $0.00
Annual Rate?: 4.5000%
Balloon Due at Payment? (#): 72
Periodic Payment?: $1,000.00
Final/Balloon Payment (can be 0)?: $50,000.00

Result:

Amount of Loan?: $84,794.97

Balloon Amortization Schedule with Extra Payments

The calculator's support for extra payment is very flexible. First, you'll notice the calculator prompts you for "Extra Payments Start?" date. You can, therefore, schedule extra payments between the regular due dates if doing so is better for your cash flow.

As mentioned elsewhere, the calculator allows for a one-time extra payment or for multiple extra payments. The multiple extra payments can be for 2 or any number up until the loan is paid-in-full. (In that case, set the number of extra payments to "Unknown.")

When the extra payments are "off-schedule," the calculator prepares an expanded amortization schedule, showing the payment being applied 100% to the principal with interest accruing.

Balloon loan schedule with interest only payments and a lump sum extra payment
Balloon loan schedule with interest only payments and a lump sum extra payment.
Note how the interest-only payment drops from $545 to $526 after the extra payment.

This is the correct way to apply the payment - something that other online calculators don't usually handle properly. That is if they even let you plan for extra payments between regular payments.

The Interest-Only Payment Method is a Special Case

Most frequently, the periodic payments get allocated to both principal and interest. Thus with each payment, the loan balance is being reduced.

But what if the borrower wants to pay even less per period?

If that's the case, the lender may agree to make the balloon loan one where the borrower pays only the interest due on each payment date. Paying only the interest each period reduces the payment amount even more for the borrower.

Interest-only option selected for the regular periodic payments
Interest-only option selected for the regular periodic payments

This calculator supports interest-only payments (select the option under "Amortization Method"). If you select it, however, the calculator works slightly differently.

  • First, the balloon payment will always be equal to the loan amount. Therefore, it isn't possible to solve for the balloon payment.
  • Or looked at in a different way, the user cannot provide a periodic payment amount. The calculator will always calculate the regular payment amount since it is the interest due.
  • When introducing extra payments into the interest-only cash flow, the calculator's main window shows the amount of the first interest-only payment. But after each prepaid principal amount, the subsequent payments will be reduced since prepaying lowers the loan balance which, of course, reduces the interest due.

Given the above, if you select interest only, in almost all cases, to use the calculator, you'll want to set both of these inputs to 0.

Periodic Payment?: $0.00
Final/Balloon Payment (can be 0)?: $0.00

Charts

As the day winds down, I go cross-eyed looking at columns of numbers. That's where cash flow charts come in handy. You can quickly learn the relationship between the principal, interest and optional extra payments.

This calculator creates 3 charts.

Balloon payment chart
Chart depicting regular periodic cash flow with a large final balloon payment.
  • The annual chart compares total interest and principal paid each year.
  • The accumulated chart shows the amounts allocated to the principal and interest since the start of the loan.
  • The pie chart clearly shows the relationship between total interest and principal with calculated percentages.

Bloggers, feel free to use these charts to make your point. Click for several export options.

Should I take out a balloon loan? There's Risk!

Balloon loans have their advantages. The borrower gets to borrow a large amount, for a short period, while making relatively small periodic payments.

However, the borrower should only consider this loan type if they are confident that they'll have the funds available or that they'll be able to refinance the loan in time to make the balloon payment when it comes due. Otherwise, the borrower will most certainly default on the terms of the loan, and they risk ruining their credit rating.

You can leave your comments and questions below.

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49 Comments on “Balloon Payment Calculator”

financial online calculator Join the conversation. Tell me what you think.
  • Qais Haikal says:

    well as i dont have that knowledge using this calculator can you help by solving this?
    The price of a car you are interested in buying is $93.45k. You negotiate a 6-year loan, with no money down and no monthly payments during the first year. After the first year, you will pay $1.23k per month for the following 5 years, with a balloon payment at the end to cover the remaining principal on the loan. The annual percentage rate (APR) on the loan with monthly compounding is 5%. What will be the amount of the balloon payment 6 years from now?

    Required: Suppose the loan has initially been paid in full (without a balance due at maturity), the amount would have totaled $37k. Calculate the absolute percentage difference between the fully amortized loan and the balloon payment.

    • One of the points of this site is to help people to learn how to do financial calculations. I do not do the calculations for people.

      Let take one question at a time. First, calculate the balloon amount for the 93.45K loan. That should be fairly straight forward. The only thing that is a bit unusual is the first yea without any payments. This calculator will handle that. For example, enter June 10, 2020 for the loan date and June 10, 2021 for the first payment date on the "Set Dates or Extra Payments." This gives you what we call a long first period. Note on the "Set Dates or Extra Payments." tab there is a "Long Period Options" setting. This controls when you see the interest for the first period. Either play with those setting or read about them on the page to understand what they do.

      Enter your payment amount, loan amount, interest rate, and 0 for the ballon amount and you’re ready to calculate.

Comments, suggestions & questions welcomed...

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