Amortization Calculator With Balloon Payment

Amortization with Balloon Payment Formula:

\[ PMT = \left(PV - \frac{Balloon}{(1 + r)^n}\right) \times \frac{r}{1 - (1 + r)^{-n}} \]

Present Value (PV):

USD

Balloon Payment:

USD

Interest Rate (r):

decimal

Number of Periods (n):

unitless

Periodic Payment (PMT):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Amortization with Balloon Payment?

Amortization with balloon payment is a loan structure where regular payments are calculated as if the loan would be paid off over a long term, but a large "balloon" payment is due at the end of a shorter term. This results in smaller periodic payments with a large final payment.

2. How Does the Calculator Work?

The calculator uses the amortization with balloon payment formula:

\[ PMT = \left(PV - \frac{Balloon}{(1 + r)^n}\right) \times \frac{r}{1 - (1 + r)^{-n}} \]

Where:

\( PMT \) — Periodic payment amount
\( PV \) — Present value or loan amount
\( Balloon \) — Final balloon payment amount
\( r \) — Periodic interest rate (decimal)
\( n \) — Total number of payment periods

Explanation: The formula calculates the regular payment amount that would pay off the portion of the loan not covered by the balloon payment over the loan term.

3. Importance of Balloon Payment Calculation

Details: Understanding the payment structure is crucial for financial planning, especially when a large balloon payment will be due at the end of the loan term. This helps borrowers prepare for the future obligation.

4. Using the Calculator

Tips: Enter the loan amount (PV), balloon payment amount, interest rate (as a decimal, e.g., 0.05 for 5%), and number of payment periods. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: When are balloon payments commonly used?
A: Balloon payments are often used in commercial loans, car leases (residual value), and some mortgages to keep monthly payments lower.

Q2: What happens if I can't make the balloon payment?
A: Typically, you would need to refinance the balloon amount, sell the asset, or negotiate new terms with the lender.

Q3: How does the interest rate affect the payments?
A: Higher interest rates increase both the periodic payments and the cost of financing the balloon payment.

Q4: Can I pay off the balloon early?
A: This depends on your loan terms. Some loans allow early payoff while others may have prepayment penalties.

Q5: Is the interest rate annual or periodic?
A: The calculator uses the periodic rate. For monthly payments with an annual rate, divide the annual rate by 12.