A balloon payment loan is a type of loan where the borrower makes regular, smaller payments for a set period, but at the end of that term, a large, single payment (the "balloon payment") is due. This balloon payment is typically the remaining principal balance of the loan, or a significant portion of it.
How it Works
Unlike traditional amortizing loans where each payment gradually reduces the principal balance over the entire loan term, a balloon loan is structured differently. The regular payments during the loan term are often calculated as if the loan were to be fully amortized over a longer period (e.g., 30 years), but the loan term itself is much shorter (e.g., 5, 7, or 10 years). This results in lower monthly payments during the initial term, but leaves a substantial balance to be paid at the end.
Balloon Payment Calculation
Our calculator uses the following formulas:
Calculate Periodic Interest Rate (r): The annual interest rate is divided by the number of payment periods per year. r = Annual Interest Rate / Payments Per Year
Calculate Total Number of Payments (n): The loan term in years is multiplied by the number of payment periods per year. n = Loan Term (Years) * Payments Per Year
Calculate Monthly Payment (M): This is calculated using the standard loan payment formula, considering the original loan amount, the periodic interest rate, and the total number of payments. M = P [ r(1 + r)^n ] / [ (1 + r)^n – 1]
Where:
P = Principal Loan Amount
r = Periodic Interest Rate
n = Total Number of Payments
Calculate Total Paid During Term: The monthly payment is multiplied by the total number of payments. Total Paid During Term = M * n
Calculate Remaining Principal: This is the original loan amount minus the portion of the principal paid off during the term. The principal paid off is the total amount paid minus the total interest paid. This can be simplified for a balloon loan calculation: The remaining principal is the original loan amount minus the sum of all payments made *if* those payments were enough to amortize the loan over the *actual* loan term. A more direct way for this calculator is to determine what the final principal would be after the set term, given the payment structure.
A common structure is that the regular payments are calculated based on a longer amortization schedule, but the loan term is shorter. For simplicity in this calculator, we will calculate the balloon payment as a percentage of the original loan amount, which is a common feature. If the balloon payment is a percentage of the original loan, the remaining balance after regular payments is what the balloon payment would represent. A more accurate calculation of remaining principal involves calculating the loan's amortization over the *actual* term. However, many balloon loans are structured such that the balloon amount is a pre-determined percentage of the original principal.
Calculate Balloon Payment: This is a percentage of the original loan amount. Balloon Payment = Loan Amount * (Balloon Payment Percentage / 100)
Calculate Total Interest Paid: This is the sum of all regular payments made plus the balloon payment, minus the original loan amount. Total Interest Paid = (M * n) + Balloon Payment - Loan Amount
When to Use a Balloon Loan
Balloon loans are often used in specific situations:
Commercial Real Estate: Businesses might use them for properties, expecting to sell the property or refinance before the balloon payment is due.
Short-Term Needs: If you anticipate a large influx of cash or refinancing options before the balloon payment, it can offer lower initial payments.
Variable Income: Individuals with fluctuating income may prefer lower initial payments.
Important Note: Balloon loans carry significant risk. If you cannot make the large balloon payment when it is due, you could face foreclosure or default. It's crucial to have a clear plan for how you will manage the balloon payment, such as refinancing or selling the asset, well in advance.
function calculateBalloonLoan() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var paymentFrequency = parseInt(document.getElementById("paymentFrequency").value);
var balloonPercentage = parseFloat(document.getElementById("balloonPercentage").value);
var resultContainer = document.getElementById("resultContainer");
var monthlyPaymentResultElement = document.getElementById("monthlyPaymentResult");
var balloonPaymentResultElement = document.getElementById("balloonPaymentResult");
var totalInterestResultElement = document.getElementById("totalInterestResult");
// Clear previous results
monthlyPaymentResultElement.innerText = "$0.00";
balloonPaymentResultElement.innerText = "$0.00";
totalInterestResultElement.innerText = "$0.00";
resultContainer.style.display = "none";
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0 ||
isNaN(annualInterestRate) || annualInterestRate < 0 ||
isNaN(loanTermYears) || loanTermYears <= 0 ||
isNaN(paymentFrequency) || paymentFrequency <= 0 ||
isNaN(balloonPercentage) || balloonPercentage 100) {
alert("Please enter valid positive numbers for all fields. Balloon percentage must be between 0 and 100.");
return;
}
// Calculations
var r = annualInterestRate / 100 / paymentFrequency; // Periodic interest rate
var n = loanTermYears * paymentFrequency; // Total number of payments
var monthlyPayment = 0;
if (r === 0) { // Handle zero interest rate
monthlyPayment = loanAmount / n;
} else {
monthlyPayment = loanAmount * (r * Math.pow(1 + r, n)) / (Math.pow(1 + r, n) – 1);
}
var balloonPayment = loanAmount * (balloonPercentage / 100);
var totalPaymentsMade = monthlyPayment * n;
var totalInterestPaid = totalPaymentsMade + balloonPayment – loanAmount;
// Format results
var formattedMonthlyPayment = "$" + monthlyPayment.toFixed(2);
var formattedBalloonPayment = "$" + balloonPayment.toFixed(2);
var formattedTotalInterestPaid = "$" + totalInterestPaid.toFixed(2);
// Display results
monthlyPaymentResultElement.innerText = formattedMonthlyPayment;
balloonPaymentResultElement.innerText = formattedBalloonPayment;
totalInterestResultElement.innerText = formattedTotalInterestPaid;
resultContainer.style.display = "block";
}