What this calculator does
A balloon loan calculates its instalments as though it ran for a long term, then demands the remaining balance as a lump sum years earlier. The payments are therefore low and the final bill is large.
The numbers make the structure clear. A $300,000 loan at 6.5 per cent amortised over 30 years costs $1,896.20 a month, but if the balloon falls at year seven, $271,248.73 is still owing. Seven years of payments have reduced the principal by less than $29,000.
The formula
The regular payment is calculated on the full amortisation term, as an ordinary loan payment would be. The balance owing at the balloon date is then found by rolling the loan forward to that point.
| Term | Meaning |
|---|---|
| Amortisation schedule | The notional term used to set the payment size, longer than the actual loan. |
| Balloon payment | The lump sum owing when the loan matures, being the remaining balance. |
| Refinancing risk | The exposure created by needing to find or borrow that lump sum on a fixed date. |
The inputs explained
| Field | What to enter |
|---|---|
| Loan amount ($) | The loan amount borrowed. |
| Annual interest rate (%) | The annual interest rate. |
| Amortisation schedule (years) | The amortisation schedule in years, which sets the payment size. |
| Balloon due after (years) | When the balloon falls due, in years. Must be shorter than the amortisation schedule. |
When to use it
Assessing a commercial property loan
Balloon structures are common in commercial lending, and the lump sum needs a plan well before it falls due.
Understanding a low advertised payment
A payment that looks affordable may be resting on a large sum due later.
Planning a refinance
Knowing the exact balance at the balloon date is the starting point for arranging the next loan.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much is still owing at each balloon date?
The same loan with the balloon falling at four different points.
| Balloon due after | Balloon payment due | Total interest paid before the balloon |
|---|---|---|
| 3 years | $289,251.73 | $57,515.07 |
| 5 years | $280,832.93 | $94,605.18 |
| 7 years | $271,248.73 | $130,529.88 |
| 10 years | $254,328.38 | $181,872.87 |
Questions
Why is so little principal repaid?
Because the payment is sized for a 30 year term, and in the early years of any long amortisation nearly all of it covers interest. Cutting the loan short at year seven means the principal has barely moved.
What happens if the balloon cannot be paid?
The usual options are refinancing, selling the asset, or defaulting. Refinancing depends on credit conditions and the asset's value at that moment, neither of which can be relied on years in advance.
Why would anyone choose this structure?
Because the payments are lower than a fully amortising loan of the same short term, which suits a borrower who expects to sell the asset or refinance before the balloon falls due. It trades monthly affordability for a concentrated future risk.
Is a balloon loan the same as an interest-only loan?
Not quite. Interest-only pays no principal at all, so the balloon equals the original amount. A balloon loan pays some principal down, just far less than the term implies.
For a conventional fully amortising loan, see the loan payment calculator. For what the total interest costs over a full term, see the compound interest calculator.