1. What is a Balloon Payment Loan?

A balloon payment loan is a type of loan that has regular monthly payments for a set period, followed by a large final (balloon) payment that pays off the remaining principal balance. These loans often have lower monthly payments than traditional loans but require a significant payment at the end.

2. How Does the Calculator Work?

The calculator uses the standard loan formula to calculate monthly payments and remaining balance:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of months in loan term
• \( PMT \) — Monthly payment amount
• \( Balloon \) — Final lump sum payment

3. Understanding the Results

Monthly Payment: The fixed amount you'll pay each month during the loan term.

Balloon Payment: The large final payment due at the end of the balloon term to pay off the remaining balance.

4. Using the Calculator

Tips: Enter the total loan amount, annual interest rate, full loan term, and the balloon term (when the large payment will be due). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: When are balloon payment loans typically used?
A: They're common in commercial real estate, car financing, and situations where the borrower expects a large sum of money in the future.

Q2: What happens if I can't make the balloon payment?
A: You may need to refinance the remaining balance, sell the asset, or face default. Terms vary by lender.

Q3: Are balloon payments tax-deductible?
A: Interest portions may be deductible (consult a tax professional), but principal payments are not.

Q4: How does the balloon term affect payments?
A: Shorter balloon terms mean higher monthly payments but smaller balloon payments, and vice versa.

Q5: Can I pay off a balloon loan early?
A: This depends on the loan terms. Some have prepayment penalties, while others allow early payoff.