Loan With Balloon Payment Calculator

Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \] \[ \text{Balloon} = P \times (1 + r)^n - \text{sum of payments} \]

Monthly Payment:

Balloon Payment:

Total Payments:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is a Balloon Payment Loan?

A balloon payment loan is a type of loan that has lower monthly payments than a traditional loan, but requires a large lump-sum payment (the "balloon" payment) at the end of the loan term. This structure allows borrowers to make smaller payments during the loan term with the expectation of refinancing or paying the balance when the balloon payment comes due.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula with balloon payment calculation:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \] \[ \text{Balloon} = P \times (1 + r)^n - \text{sum of payments} \]

Where:

\( P \) — Principal loan amount (USD)
\( r \) — Monthly interest rate (decimal)
\( n \) — Number of months (unitless)
\( PMT \) — Monthly payment amount (USD)
\( \text{Balloon} \) — Final balloon payment (USD)

Explanation: The formula calculates the fixed monthly payment required to pay off a loan over a specified term, then determines what lump sum would remain if only the interest portion was paid during the term.

3. When Are Balloon Loans Used?

Details: Balloon loans are commonly used in commercial real estate, business loans, and sometimes for residential mortgages when borrowers expect to sell the property or refinance before the balloon payment comes due.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage, and loan term in years. The calculator will show the monthly payment, balloon payment, and total payments over the loan term.

5. Frequently Asked Questions (FAQ)

Q1: What are the advantages of a balloon loan?
A: Lower monthly payments during the loan term, which can help with cash flow management.

Q2: What are the risks of balloon loans?
A: The borrower must be able to make the large balloon payment at the end, which may require refinancing (subject to credit approval) or selling the asset.

Q3: How is the balloon payment calculated?
A: It's the future value of the principal minus the sum of all payments made during the loan term.

Q4: Are balloon payments tax-deductible?
A: Interest portions of balloon payments may be deductible (consult a tax professional).

Q5: Can I refinance a balloon loan?
A: Typically yes, but refinancing depends on creditworthiness and market conditions at the time.