Balloon Payment Calculator
Calculate the monthly payment and final balloon on a loan amortised over a longer term than its maturity, with the refinance risk and a comparison against full amortisation.
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A payment based on a term the loan does not have
A balloon loan calculates its monthly payment as if it were amortising over a long period, commonly thirty years, but matures much sooner, commonly five or seven. The monthly payment is therefore low, and at maturity the remaining balance falls due as a single lump sum. Commercial property lending is built on this structure, and it appears in equipment finance, seller financing and some car loans.
Very little principal is repaid
Early amortisation payments are mostly interest. On a thirty year schedule at seven percent, only about eight percent of the original balance is repaid in the first five years, so a balloon at year five is roughly ninety two percent of the original loan. The low monthly payment feels like an advantage right up until the maturity date, at which point the borrower owes almost the entire original amount and must find it from somewhere.
The risk is refinancing, not the payment
Balloon structures assume the borrower will refinance or sell before maturity. That assumption is usually reasonable and occasionally catastrophic, because it fails exactly when credit tightens, values fall or rates rise, which are correlated events. The 2008 commercial property crisis and the 2023 office refinancing wave both consisted of borrowers who could service their loans but could not refinance them. The relevant question is never whether the payment is affordable but whether the refinance will be available.
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Frequently Asked Questions
Why is the balloon so close to the original loan?
Because early payments on a long amortisation schedule are almost entirely interest. On a 30 year schedule, roughly 8 percent of principal is repaid in the first five years, so a five year balloon leaves about 92 percent outstanding.
What happens if I cannot refinance?
The lender can demand payment and, failing that, foreclose or repossess. Some agreements include a conditional extension or reset, but these usually carry conditions such as loan to value and payment history that are hardest to meet in the conditions that made refinancing difficult.
Why do commercial lenders use this structure?
It limits their interest rate exposure to a five or ten year horizon while giving the borrower a long amortisation payment. The refinancing risk is transferred to the borrower, which is priced into the lower rate.
Is a balloon ever the right choice?
When you know you will sell or refinance within the term for a reason independent of market conditions, and when you have a fallback if you cannot. As a way to afford a payment you otherwise could not, it is postponing a problem rather than solving one.
How can I reduce the balloon?
Pay extra principal monthly, which reduces it directly. The calculator shows how much extra payment is needed to reach a target balloon, which is often a surprisingly achievable number compared with the size of the eventual lump sum.
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How to Use
Enter loan amount, rate, the amortisation term and the shorter balloon term.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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