How Do I Calculate a Balloon Payment?
A balloon mortgage is a loan that has a five- to 10-year term, during which time the monthly payments are typically lower in interest. At the end of the term, the remaining balance of the loan is due, and is most often paid off by refinancing or selling the property. This balance is referred to as the balloon payment. Calculate your balloon mortgage in order to determine how much you will need to pay each month, and what the remaining balloon payment balance will be at the end of the term.
Calculating a Balloon Mortgage
Contact your real estate agent, mortgage lender or local financial institution for a mortgage calculator. You may also find a free mortgage calculator online. A mortgage calculator uses your loan amount, interest rate and loan term to determine your payments.
Enter the full amount of your loan into the calculator, then enter in the term of your loan. Enter in your interest rate, and any prepayments that you have made on the loan. Click the calculate or submit button, and the mortgage calculator will present you with the number of monthly payments you will need to make, how much each payment will be, and the total amount of money you will pay into the loan by the end of its term. Additionally, the mortgage calculator will display your balloon payment--the remaining balance that you must pay off at the end of the loan term.
Precautions
Balloon mortgage loans are easier to qualify for and typically offer lower interest rates, but there's a big catch: The remaining principle balance must be paid off at the end of the loan term. Do not agree to a balloon mortgage loan unless you are able to repay the remaining balance, either in full, or by refinancing or selling the property.
