How do you calculate a balloon payment with an amortization schedule?


Quick Answer

To calculate a balloon payment with an amortization schedule, enter the initial mortgage amount into a balloon mortgage calculator such as the one at Bankrate.com. Enter the interest rate and the number of years in the payment agreement, and the calculator then shows the monthly payment and the balloon payment amounts.

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Full Answer

The total amount of money borrowed is repaid partially through monthly payments, and the remaining portion is paid as the balloon payment at the end of the term, explains Bankrate. The calculator shows how the term and interest rate affect the monthly payment and the balloon amount as the user changes the parameters or moves the sliders. The calculation using the Bankrate.com calculator assumes that the monthly payments are amortized over 30 years.

It is possible to generate reports of annual balances and see how the remaining balance decreases year by year depending on the interest rate, as shown by Bankrate. When the interest rate is smaller, the annual balance reduces faster and hence the final balloon payment becomes smaller. When the term is longer, the balloon payment is smaller.

For example, on a $500,000 mortgage for a 5-year term at the rate of 4 percent, the monthly payment is $2,387.08, based on the Bankrate balloon mortgage calculator. Part of this payment goes toward the interest accrued every month, and the remaining portion reduces the balance. The balance remaining at the end of the term becomes the balloon payment.

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