This balloon balance calculator will calculate the balance due at the end of your balloon loan. A balloon loan is a loan that has a term that is shorter than its amortization.
Balloon Balance Calculator
On This Page
- Balloon Balance of a Loan Formula
- What Is A Balloon Loan
- Who takes out a balloon loan and why?
What Is A Balloon Loan
A balloon loan is a loan that has a shorter term than its calculated amortization. For instance, your payment with a balloon loan may be calculated at a 30-year term, but the loan would come to term after 10 years. After the 10 years, the loan would have a balance due that would need to be paid-off in full. Typically savvy investors will use balloon loans whereas individuals will not. If you will take out a balloon loan, you need to ensure you have the capital or savings balanced to pay-off the balloon at the end of the loan. Try various values in the balloon balance calculator above to ensure you have the funds to make the balloon payment.
Balloon Balance of a Loan Formula
The formula below can be used to calculate the balloon balance of a loan.
Bal = Pv * (1 + r)n - P[( (1 + r)n - 1)/r)]
Bal = The balloon balance
Pv = the original balance of the loan
P = the payment
r = the interest rate per payment
n = the number of payments made
Who takes out a balloon loan and why?
Balloon loans are typically taken out by businesses or savvy investors. They are typically short-term loans and have lower interest rates than longer-term loans. A balloon loan may be attractive if you are planning to purchase a home and then sell it quickly as you will be making smaller payments during the term of your loan and then use the proceeds of the sale of the home to pay-off the balloon at the end of the term.
For these reasons, we don’t recommend taking out a balloon loan unless your savings account balances are already very high or you have another means of obtaining the funds to pay-off the balloon.