1. What is an Interest-Only Balloon Loan?

An interest-only balloon loan requires only interest payments during the loan term, with the full principal (or remaining balance) due as a lump sum (balloon payment) at the end. Extra payments reduce the principal and thus the final balloon payment.

2. How Does the Calculator Work?

The calculator uses these formulas:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( PMT \) — Monthly interest payment (USD)
• Extra payments — Additional amount applied to principal each month

Explanation: The calculator shows how extra payments reduce the balloon payment by directly decreasing the principal balance.

3. Importance of Extra Payments

Details: Extra payments can significantly reduce the balloon payment at maturity. Even small additional amounts can have a substantial impact over the loan term.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, loan term in months, and optional extra payment. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the benefit of an interest-only balloon loan?
A: Lower monthly payments during the term, useful for those expecting a large sum at maturity (like a bonus or property sale).

Q2: How do extra payments affect the balloon payment?
A: Each extra payment directly reduces the principal, decreasing the final balloon payment dollar-for-dollar.

Q3: Can extra payments eliminate the balloon payment?
A: Yes, if total extra payments equal or exceed the principal during the loan term.

Q4: Are there prepayment penalties?
A: Some loans have penalties for early payoff - check your loan agreement.

Q5: Is this calculator suitable for amortizing loans?
A: No, this is specifically for interest-only balloon loans. Different calculators exist for amortizing loans.