Balloon Loan Calculator

What is a Balloon Loan?

A balloon loan is a type of loan that requires smaller, regular payments for a specific period, but concludes with a single large lump-sum payment due at the end of that period. This final large payment is known as the "balloon payment."

The smaller monthly payments are typically calculated based on a longer amortization schedule (like a standard 30-year mortgage), but the loan term itself is much shorter (e.g., 5, 7, or 10 years). At the end of this shorter term, the remaining principal balance becomes due immediately as the balloon payment.

How Balloon Loans Work

• Lower Initial Payments: Because the regular payments are calculated over a longer theoretical term, they are usually lower than payments on a fully amortizing loan of the same shorter term.
• Lump Sum Due: The defining feature is the large final payment required to pay off the remaining principal balance.
• Refinancing or Sale Strategy: Borrowers often plan to either sell the financed asset (like a house or commercial property) or refinance the loan before the balloon payment comes due.

Pros and Cons of Balloon Loans

Pros:

• Lower initial monthly payments compared to shorter-term fully amortizing loans.
• Can be useful for short-term financing needs or if expecting a significant income increase or asset sale before the balloon term ends.

Cons:

• Significant Risk: The primary drawback is the large final balloon payment. If you cannot afford it and are unable to refinance or sell the asset, you risk default and foreclosure/repossession.
• Refinancing is not guaranteed and depends on market conditions, interest rates, and your creditworthiness at that future time.
• May end up paying more total interest if refinanced into another long-term loan.

How to Use This Calculator

1. Enter the total Loan Amount.
2. Input the Annual Interest Rate.
3. Enter the Full Loan Term in Years (this is the amortization period used to calculate the regular payment, e.g., 30).
4. Enter the Balloon Term in Years (the number of years until the large final payment is due, e.g., 7). This must be less than or equal to the Full Loan Term.
5. Click "Calculate Balloon Loan".
6. The results will show your estimated regular monthly payment, the number of those payments, the total interest paid during that period, and the estimated final balloon payment amount.

Disclaimer: This calculator provides estimates based on your inputs and standard balloon loan calculation methods. It assumes fixed rates and timely payments. Actual payments and the final balloon amount may vary due to lender fees, rounding methods, or other factors. This tool is for informational purposes only and does not constitute financial advice or a loan offer.