Balloon Payment Calculator

What is a balloon payment?

A balloon payment is a large lump-sum payment due at the end of a shorter loan term. The monthly payment is calculated on a longer amortisation schedule — commonly 30 years — but the loan matures after a shorter period, typically 5, 7 or 10 years. At that point the remaining principal balance is due in full.

For example, a $250,000 loan at 6.5% amortised over 30 years has a monthly payment of $1,580. After 5 years the borrower has made 60 payments totalling $94,810, but the balance remaining is roughly $234,000 — that is the balloon payment due at year 5.

Balloon structures are most common in commercial real estate, bridge financing, land contracts and some adjustable-rate mortgages. They are rarely offered as residential qualified mortgages because the CFPB's Ability-to-Repay rule generally requires a loan's payments to fully amortise the balance over the loan term.

How is a balloon payment calculated?

The monthly payment uses the standard level-payment formula on the full amortisation term: PMT = P × r(1+r)^N / [(1+r)^N − 1], where P is the principal, r is the monthly rate (annual ÷ 12) and N is the amortisation term in months.

The balloon loan simply runs this schedule for only k months (the balloon term) instead of N months, and the remaining balance at month k is what you owe.

The remaining balance formula is exact: B_k = P(1+r)^k − PMT × [(1+r)^k − 1] / r. This is the calculation this page performs — it is not an approximation. Payment rounded to the nearest cent; interest computed on the unrounded balance each period; the final balloon amount absorbs the rounding residual.

Rounding note: because the payment is rounded to the cent before the schedule, the computed balloon will differ by a few cents from a theoretical calculation using an unrounded payment. This is the convention lenders use on the Loan Estimate disclosure (CFPB, TILA §1026).

How does an interest-only balloon loan change the payment?

In an interest-only balloon loan, each scheduled payment covers only the interest on the outstanding balance — no principal is repaid. The monthly payment is simply P × r (annual rate ÷ 12 × principal). Because no principal is reduced, the balloon at the due date is the full original loan amount.

Interest-only structures produce the lowest possible monthly payment for a given loan amount and rate. A $200,000 loan at 5% has a standard 30-year payment of $1,073.64 but an interest-only payment of just $833.33 — a saving of $240.31 per month. The trade-off is that you owe $200,000 at the balloon date instead of the $183,658 you would owe after 5 years of standard amortisation.

Interest-only balloon loans appear frequently in commercial and bridge financing where borrowers expect to refinance, sell or receive a capital event before the balloon date. The interest-only option in this calculator lets you compare the two payment levels side by side using your own figures.

What happens when the balloon payment is due?

When the balloon date arrives, the borrower has three options: (1) pay the balloon in cash, (2) refinance the remaining balance into a new loan, or (3) sell the asset to cover the payoff. None of these is guaranteed to be available on the balloon date.

Refinancing risk is the most common concern. A borrower who takes a 5-year balloon in a low-rate environment may find that rates have risen significantly by year 5, making the new loan substantially more expensive — or, if the property value has fallen, that a lender will not approve the refinance at all. The CFPB's Ability-to-Repay rule was introduced in part to address this risk: for most residential mortgages, a loan must fully amortise within the loan term, precisely because a balloon requirement at the end transfers the refinancing risk entirely to the borrower.

This page's risk disclosure is not advice — it is the factual description the CFPB uses in its consumer guidance. Your actual risk depends on your loan terms, your lender's policies and market conditions on the balloon date. Always plan for the worst case before signing a balloon loan.

Is a balloon loan cheaper than a fully-amortising mortgage?

A standard 30-year mortgage and a 5/25 balloon loan (5-year balloon, 30-year amortisation schedule) have identical monthly payments. The difference is what happens at year 5: the mortgage holder continues making the same payment for 25 more years, while the balloon borrower owes about 94% of the original principal in a lump sum ($234,027 of $250,000 at 6.5%).

The balloon borrower pays less total interest if they refinance or sell before year 5, because total interest paid equals years × payment − principal paid, and stopping early means fewer payments made. But if the balloon must be refinanced at a higher rate, the lifetime cost can exceed the standard mortgage by a large margin. This calculator lets you compare both paths: run the default mode to see the balloon amount and total interest paid, then imagine paying that balloon off under a new rate scenario using the loan amortisation calculator.

One legitimate use of a balloon loan: a borrower who is certain they will sell an asset before the balloon date. A 7-year balloon at a slightly lower rate can save thousands in interest relative to a 30-year fixed if the sale closes in years 3–6. The key word is certain — most real estate sales take longer than planned.