Balloon Payment Calculator

How do you calculate a balloon payment?

To calculate a balloon payment, start with the original principal and the monthly interest rate, which is the annual rate divided by 12. The monthly payment is the fully amortizing payment on the longer schedule. The balloon is the principal still outstanding after only the payments made before the balloon date:

B = P(1+r)^n - PMT[((1+r)^n - 1)/r]

P is the original principal. r is the monthly interest rate. n is the number of monthly payments before the balloon. PMT is the payment that would pay the loan off over the full amortization, not over the balloon term: principal times r, divided by 1 minus (1+r) raised to the negative number of amortization months. When the rate is zero, the balance is principal minus that payment times the number of payments made. This is the formula the calculator uses.

That payment is not an interest-only payment. An interest-only period would leave the entire principal due, because nothing has been retired. A balloon loan on this page still amortizes. Each month the payment covers interest on the current balance, and the rest reduces principal. The payment was sized to reach a zero balance only at the end of the full amortization, so the principal portion is small in the early years. Stop the schedule at the balloon date and the unpaid principal is the amount due in one sum.

Compute it in four steps. Divide the annual rate by 12 to get r. Multiply the amortization in years by 12; that count is what sets PMT. Multiply the balloon year by 12; that count is n, the payments that actually get made. Then apply the balance formula. Total paid to the balloon is PMT times n. Principal retired is the original balance minus the balloon. Interest is total paid minus principal retired.

Two boundaries follow from the same math. If the balloon year equals the amortization, n covers the full schedule, the balance is zero, and the last payment is an ordinary installment. If the balloon year is longer than the amortization, the loan would already be paid off. The calculator stops and warns that the balloon term cannot exceed the amortization period. A zero interest rate skips the power formula: the payment is principal divided by the amortization months, and the balloon is principal minus that payment times n.

What is a worked example?

The inputs prefilled above are a $1,000,000 loan at 7%, with 25-year amortization and a balloon due in 10 years, which is 120 monthly payments. The monthly payment is $7,067.79. Those 120 payments total $848,135, of which $634,469 is interest and $213,666 is principal, so the balloon due is $786,334. The payment is shown in cents and the other amounts in whole dollars, the same way this calculator displays them.

Fill the formula with those inputs. The monthly rate r is 7 percent divided by 12. The amortization that sets the payment is 25 times 12, or 300 months. The balloon arrives after 10 times 12 payments, so n is 120. PMT is the $1,000,000 principal times r, divided by 1 minus (1+r) raised to the power of negative 300. Rounded to the cent, that payment is $7,067.79. The balance formula then compounds the original principal by (1+r) for 120 months and subtracts the compounded value of the 120 payments. The unpaid principal, rounded to the dollar, is $786,334.

The figures close. Principal retired plus the balloon equals the original $1,000,000: $213,666 plus $786,334. Interest plus principal retired equals total paid: $634,469 plus $213,666 is $848,135. The large balloon after ten years is what the formula produces when most of each early payment is interest. Interest on the original balance for the first month is $1,000,000 times 0.07 divided by 12, which is $5,833.33 to the cent, so only the rest of the $7,067.79 payment reduces principal. That principal portion grows as the balance falls, but month 120 is still early on a 300-month payoff, and $786,334 remains.

Treat the prefilled result as a checksum, not a market quote. The page computes it from the same function as the inputs on this screen, then formats the payment in cents and the other totals in whole dollars. Change the loan amount, the rate, the amortization, or the balloon year and every figure updates. A higher annual rate raises both the monthly payment and, while the balloon year is still short of the amortization, the balance still due. A longer amortization lowers the payment and leaves a larger balloon at the same year. A later balloon date, still inside the amortization, retires more principal before the balance comes due. When the balloon year and the amortization year match, the balance due is zero.

How should loan term match the lease term?

Keep the balloon date well inside the lease's healthy years. Refinancing a 6.9% cap property is routine with 10 years of term left and expensive with 3. Check your deal's dates against the lease expiry calculator before you sign the term sheet.

The balloon is the date the remaining principal comes due, and the lease is the income that has to meet it. The usual choices on that date are to refinance, sell, or pay the balance off. A refinance is underwritten on the lease that will still be in place, because the rent is what pays the new loan. A sale is priced on the term a buyer will inherit. Paying the balance off takes cash equal to the balloon this calculator produces. All three are harder when the balloon lands near the end of the lease, and easier when several years of term remain.

The 6.9% figure is an illustration of that timing, not a market average and not a quote. It is the same property at two remaining terms: ten years left, when a lender or a buyer can still see a long rent stream, and three years left, when the income that supports the loan is almost gone. The cap rate in the illustration did not change. Place the balloon while the lease still has those comfortable years, not after the remaining term has become short.

Do the comparison before the term sheet, while the balloon year is still a choice. Put the lease start date and the primary term into the lease expiry calculator and read the expiration date. Count the years from closing to that expiration, then compare that count with the balloon year you are about to accept. Leave a cushion so the balloon is not the day the lease ends. Renewal options are not part of the term until the tenant exercises them, so do not count an unexercised option as years you can rely on when you set the balloon.

This calculator tells you the dollars due on the date you pick. It does not read the lease. Pair the balloon year with the expiry date and keep it inside the years when refinancing or selling is still ordinary. If those years are already short, a shorter amortization or a smaller loan changes the balloon the tool shows.