Balloon Payment Calculator
Find out how much you will still owe when the balloon comes due, and what it costs to refinance a balance you cannot pay in cash.
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Why a balloon loan feels cheap and is not
A balloon loan keeps the monthly payment low by amortising the debt over a much longer period than the loan actually lasts. You might pay as though you had thirty years, while the entire remaining balance falls due in seven. The payment is genuinely lower. The debt is not smaller, and that gap is where borrowers get caught.
The arithmetic is stark. On 300,000 dollars at 6.5 percent amortised over 30 years, the monthly payment is 1,896.20 dollars. After seven years you have paid 159,000 dollars and still owe 271,248.73 — you have repaid 9.58 percent of the loan. Almost everything you paid was interest. A fully amortising loan over the same seven years would have cost 4,454.83 dollars a month, which is why the balloon looked attractive.
The real decision arrives on the balloon date. Very few borrowers have 271,000 dollars in cash, so the practical outcome is refinancing — and you refinance at whatever rate exists then, on a balance that has barely moved, over a term that now has to fit the remaining years. At 7.5 percent over 20 years that is 2,185.16 dollars a month, which is more than the loan you started with would have cost.
This is not an argument that balloon loans are always wrong. They suit specific situations: a builder financing a project, a borrower certain of a lump sum, or someone whose income will rise sharply. What they are not is a cheaper way to buy something you could not otherwise afford. The payment is smaller, and the obligation is not.
How the balloon balance is calculated
The payment comes from the full amortisation term. The balance due is then found by walking the schedule to the balloon date, because that is the only way to get it exactly right.
| Symbol | Meaning |
|---|---|
P |
The amount borrowed |
i |
Monthly interest rate: the annual rate divided by 12 |
n |
Number of payments in the amortisation term, not the balloon term |
Balance due |
What is left to repay when the balloon date arrives |
The refinance figures assume the balance is refinanced at the rate you enter, over the term you enter. That is the realistic alternative to paying the balance in cash, and it is the number worth planning against.
Worked example: 300,000 dollars, 30-year schedule, 7-year balloon
At 6.5 percent, with the balance refinanced at 7.5 percent over 20 years.
| Figure | Result |
|---|---|
| Monthly payment | $1,896.20 |
| Balance due after 7 years | $271,248.73 |
| Principal repaid in 7 years | $28,751.27 |
| Share of the loan repaid | 9.58% |
| Interest paid before the balloon | $130,529.88 |
| Payment on a 7-year amortising loan | $4,454.83 |
| Monthly saving versus that loan | $2,558.63 |
| Payment if refinanced at 7.5% over 20 years | $2,185.16 |
| Total cost of refinancing the balance | $524,438.72 |
You paid 159,000 dollars over seven years and reduced the loan by 28,751. The remaining 271,248.73 falls due in a single payment. Refinancing it at 7.5 percent costs 2,185.16 dollars a month — more than the loan would have cost from the start with full amortisation. That is the trade a balloon loan makes, and it is worth seeing before signing rather than after.
Estimates only. Your lender's figures may differ because of fees, escrow and rounding.
Before you sign a balloon loan
Work out the balloon balance, not the payment
The payment is designed to look comfortable; the balance is designed to be invisible. On this example you repay 9.58 percent of the loan in seven years. Ask for the projected balance in writing and decide whether you will have it.
Have the exit planned before you start
A balloon loan is reasonable if you know how it ends: a sale, a lump sum, a refinance you already qualify for. It is unreasonable if the plan is to figure that out later. The lender is not required to refinance you, and if your circumstances change they may decline.
Compare the monthly saving honestly
Paying 1,896 instead of 4,454 dollars a month saves 2,558 dollars — real money. But you are not saving it, you are deferring it, and the deferred amount is refinanced at whatever rate exists in seven years. Weigh the certain saving against the uncertain future cost.
Check whether it is a balloon or interest-only
Some loans marketed as balloons are interest-only, meaning the balance never falls at all. On 300,000 dollars at 6.5 percent that is a payment of 1,625 dollars and a balance of 300,000 after seven years. Ask directly whether any principal is repaid before the balloon.
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Frequently asked questions
What is a balloon payment?
A lump sum due at the end of a loan whose payments were calculated on a longer schedule. On a 7-year balloon amortised over 30 years, you make seven years of payments as though you had thirty, and then the whole remaining balance falls due at once — 271,248.73 dollars on the example on this page.
How much will I owe at the balloon?
Far more than most borrowers expect, because early payments are almost entirely interest. On 300,000 dollars at 6.5 percent you repay 9.58 percent of the loan in seven years and still owe 271,248.73. The calculator above shows the exact figure for your loan and balloon date.
What happens if I cannot pay the balloon?
You refinance, sell, or default. Most borrowers refinance, which means accepting whatever rate is available then on a balance that has barely moved. If you cannot refinance and cannot sell, the lender can foreclose. That risk is the reason balloon loans carry lower payments.
Is a balloon loan the same as interest-only?
No, though they are often confused. A balloon loan does repay some principal, just slowly. An interest-only loan repays none, so the balance at the end equals the balance at the start. Ask the lender which one you are being offered, because the difference is your entire equity.
Are balloon loans ever a good idea?
Yes, in situations where the exit is already certain: a builder financing a project that will sell, a borrower with a documented lump sum arriving, or someone whose income will rise sharply and predictably. They are a poor idea when the plan is to hope a refinance works out.