Balloon Loan Calculator Amortization Schedule Bankrate

Balloon Loan Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Principal Amount (P):

USD

Annual Interest Rate:

Loan Term:

years

Balloon Payment After:

years

Monthly Payment:

Balloon Payment:

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1. What is a Balloon Loan?

A balloon loan is a type of loan that has regular payments for a certain period, followed by a large final "balloon" payment that pays off the remaining balance. These loans often have lower monthly payments than traditional loans but require the borrower to make a substantial final payment.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

\( PMT \) — Monthly payment amount
\( P \) — Principal loan amount
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Total number of payments (loan term in months)

Balloon Payment Calculation: The remaining balance after the specified balloon period is calculated by amortizing the loan over the full term but stopping the calculation at the balloon period to determine the outstanding principal.

3. Understanding the Amortization Schedule

Details: The amortization schedule shows how each payment is split between principal and interest, and how the loan balance decreases over time until the balloon payment is due.

4. Using the Calculator

Tips: Enter the total loan amount, annual interest rate, full loan term, and the period after which the balloon payment is due. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why would someone choose a balloon loan?
A: Balloon loans can be useful for borrowers who expect to have more money in the future (from an investment maturing, bonus payment, etc.) or plan to refinance before the balloon payment is due.

Q2: What happens if I can't make the balloon payment?
A: You may need to refinance the balloon amount, sell the asset, or face default. It's important to have a plan for the balloon payment before taking out this type of loan.

Q3: Are balloon loans common for mortgages?
A: They're less common than traditional mortgages but may be used in certain situations, particularly for investment properties or short-term ownership situations.

Q4: How is the balloon payment calculated?
A: The balloon payment is the remaining principal balance after making regular payments for the specified balloon period, calculated based on the full loan term.

Q5: Can I pay off a balloon loan early?
A: This depends on the loan terms. Some balloon loans may have prepayment penalties, so it's important to check with your lender.