Balloon Loan Balance Formula
The balloon loan balance formula is used to calculate the amount due at the end of a balloon loan.
A balloon loan, sometimes referred to as a balloon note, is a note that has a term that is shorter than its amortization. In other words, the loan payment will be amortized, or calculated, for a certain amount of years but the loan will be paid off before all payments calculated are made, thus leaving a balance due.
Example: A note that is calculated for 30 years, but the remaining balance after 10 years must be paid in one full sum. This example is commonly referred to as a 10/30 balloon.
The loan balloon balance formula can be used for any type of balloon loan and is commonly seen with mortgages and leases.
Balloon Balance Formula and Remaining Balance Formula
The formula to calculate a balloon balance is the same formula used to calculate the remaining balance on a loan. The same formula is used because the amount due at the end of a balloon loan is effectively the same as calculating the balance of a conventional loan after the same period, all other things held constant.
Example of Loan Balloon Balance Formula
An example of the loan balloon balance formula would be a $100,000 5/15 balloon mortgage with a 6% annual rate compounded monthly.
If the loan payment formula is used based on a 15 year amortization, the monthly payment would be $843.86.
For a 5/15 balloon, the loan will be amortized for 15 years, while we are solving for the amount due after the 5th year.
The variables: PV = $100,000, P = $843.86, Rate = 0.005 (monthly rate for 6% per year), Periods = 60 months
Remaining Balance: $76,008.88
This remaining amount due would be after the 60th payment is made
Important: For an individual that has a loan, they would need to pay the final payment as well as the balloon balance.