1. What is a Balloon Loan?

A balloon loan is a type of loan that requires only interest payments during the loan term, with the entire principal amount due as a single "balloon" payment at maturity. This structure results in lower monthly payments during the loan term but requires a large final payment.

2. How Does the Calculator Work?

The calculator uses the balloon loan formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( PMT \) — Monthly interest payment (USD)
• \( Balloon \) — Final principal payment due at maturity (USD)

Explanation: The calculator computes the monthly interest-only payments and generates a complete payment schedule showing the gradual reduction of principal (if any) and the final balloon payment.

3. Understanding the Payment Structure

Details: Balloon loans are common in commercial real estate and certain types of business financing. They allow borrowers to make smaller payments during the loan term while deferring the principal repayment to the end.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage, and loan term in months. The calculator will display the monthly interest payment, final balloon payment, and complete amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: When are balloon loans typically used?
A: Balloon loans are often used for short-term financing, commercial real estate, or when the borrower expects to refinance or sell the asset before the balloon payment comes due.

Q2: What happens if I can't make the balloon payment?
A: You may need to refinance the loan, sell the asset, or negotiate new terms with the lender. Defaulting on a balloon payment can lead to foreclosure or repossession.

Q3: Are balloon loans riskier than traditional loans?
A: They can be, as they require a large lump-sum payment at the end. Borrowers should have a clear plan for how they'll handle the balloon payment.

Q4: Can I make principal payments during the loan term?
A: This depends on the loan terms. Some balloon loans allow optional principal payments, while others require interest-only payments until maturity.

Q5: How does this differ from a traditional amortizing loan?
A: In a traditional loan, each payment includes both principal and interest, gradually paying down the loan. A balloon loan defers the principal repayment to the end.