Balloon Payment Calculator With Set Payment

Balloon Payment Formula:

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

Initial Principal (PV):

USD

Periodic Interest Rate (r):

decimal

Number of Periods (n):

unitless

Fixed Periodic Payment (PMT):

USD

Balloon Payment:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is a Balloon Payment?

A balloon payment is a large, lump-sum payment made at the end of a loan term after a series of smaller regular payments. This type of payment structure is common in certain mortgage and auto loans.

2. How Does the Calculator Work?

The calculator uses the balloon payment formula:

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

Where:

\( PV \) — Initial principal amount (USD)
\( r \) — Periodic interest rate (decimal)
\( n \) — Number of payment periods (unitless)
\( PMT \) — Fixed periodic payment amount (USD)

Explanation: The formula calculates the remaining balance after making regular payments, accounting for compound interest.

3. Importance of Balloon Payment Calculation

Details: Understanding your balloon payment helps in financial planning, especially for loans with this structure. It allows borrowers to prepare for the large final payment.

4. Using the Calculator

Tips: Enter the initial loan amount, periodic interest rate (as decimal), number of payment periods, and fixed payment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What types of loans typically have balloon payments?
A: Balloon payments are common in some mortgages, business loans, and auto loans, often offering lower monthly payments with a large final payment.

Q2: How is the periodic interest rate calculated?
A: For monthly payments, divide the annual rate by 12. For quarterly payments, divide by 4.

Q3: Can I refinance a balloon payment?
A: Many borrowers refinance balloon payments, but this depends on creditworthiness and market conditions at the time.

Q4: Are balloon payments risky?
A: They can be risky if the borrower can't make the large final payment, potentially leading to default or forced refinancing.

Q5: How does this differ from an amortizing loan?
A: In a fully amortizing loan, the regular payments pay off the entire loan. With a balloon payment, the regular payments don't fully amortize the loan.