How to Calculate Balloon Loan
What is Balloon Loan?
A balloon loan has lower monthly payments with a large lump-sum payment due at the end (balloon payment). Often used in real estate and vehicle financing.
Formula
Monthly payment = (Loan - Balloon/(1+r)ⁿ) × [r(1+r)ⁿ / ((1+r)ⁿ - 1)]
Step-by-Step Guide
- 1Enter loan amount, balloon payment, interest rate, term
- 2Calculate present value of balloon payment
- 3Compute monthly payment for remaining amount
Worked Examples
Input
Loan: $300k, Balloon: $100k, 5%, 30 years
Result
Monthly ≈ $1,146
Plus $100k due at end
Common Mistakes to Avoid
- ✕Forgetting the balloon payment in total cost
- ✕Incorrect present value of balloon
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