Balloon payment calculator
Most commercial loans are due long before they're paid off. See your monthly payment and the lump sum (the balloon) you'll owe when the loan comes due.
What this answers: What will my monthly payment be, and how big a lump sum will I owe when the loan comes due?
Start from an example, then change any number:
You'll pay $10,602 a month. When the loan comes due you'll still owe $1,179,501 (79% of what you borrowed), so plan to refinance, sell or pay it in cash by year 10.
- Total paid (payments + balloon)
- $2,451,704
Year-by-year schedule
| Year | Payments | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $127,220 | $104,273 | $22,947 | $1,477,053 |
| 2 | $127,220 | $102,614 | $24,606 | $1,452,447 |
| 3 | $127,220 | $100,835 | $26,385 | $1,426,062 |
| 4 | $127,220 | $98,928 | $28,292 | $1,397,770 |
| 5 | $127,220 | $96,883 | $30,337 | $1,367,432 |
| 6 | $127,220 | $94,690 | $32,531 | $1,334,902 |
| 7 | $127,220 | $92,338 | $34,882 | $1,300,020 |
| 8 | $127,220 | $89,816 | $37,404 | $1,262,616 |
| 9 | $127,220 | $87,113 | $40,108 | $1,222,508 |
| 10 | $127,220 | $84,213 | $43,007 | $1,179,501 |
Balloon due at the end of year 10$1,179,501
How this is calculated
- 1Interest-only payment = loan × yearly rate ÷ 12, for the interest-only years at the start.
- 2Amortizing payment = the standard loan payment for the full loan spread over the amortization period: loan × r ÷ (1 − (1 + r)−n), where r is the monthly rate and n is amortization years × 12.
- 3Each month, interest = balance × r and principal = payment − interest, which lowers the balance.
- 4Balloon = the balance left after the last payment of the loan term. If the term is as long as the amortization, there's no balloon.
- 5Total interest adds up every month's interest over the term. Total paid = all payments + the balloon.
Assumes a fixed rate, payments on time, and interest figured monthly on a 30/360 basis. Some commercial lenders charge interest on an actual/360 basis, which costs a little more. Prepayment penalties, fees and rate resets aren't included.
Words to know
- Balloon payment
- The lump sum still owed when the loan term ends. Most owners refinance or sell to pay it.
- Amortization period
- The number of years the payment is figured over. A longer one means a lower payment but a bigger balloon.
- Loan term
- How long until the whole loan is due. Commercial terms of 5, 7 or 10 years are common.
- Interest-only (IO)
- Years at the start when you pay only interest, so the balance doesn't go down at all.
- Refinance risk
- The chance that when the balloon is due, rates are higher or the property is worth less, making a new loan hard to get.
- Principal
- The part of each payment that pays down what you owe.
Frequently asked questions
- Can I make extra payments to shrink the balloon?
- Often, yes, but check the loan first. Many commercial loans limit or charge for prepayment. Every extra dollar of principal you pay lowers the balloon by a dollar, plus the interest that dollar would have cost.
- Is the balloon payment included in the monthly payment?
- No. The monthly payment covers interest and some principal. The balloon is a separate lump sum due on the last day of the loan term.
- What amortization should I enter?
- Use the amortization on the term sheet, not the loan term. A loan described as "10 years, 25-year amortization" has a 25-year amortization and a 10-year term.
- Why does the payment jump after the interest-only years?
- During interest-only years you pay no principal. Once they end, the loan starts paying down principal over the amortization period, so the payment goes up.
- Does this work for residential balloon mortgages?
- Yes. The math is the same for any fixed-rate loan with a payment figured over a longer period than the loan term, including seller-financed notes.