Of course, all of this assumes the borrower doesn’t make so many extra payments that they pay off the entire balloon ahead of time. Using the example above, at the end of the five-year loan term, there would still be a balance outstanding on the loan, and the borrower would need to pay it off, either in cash or with the proceeds of a new loan, effectively refinancing the loan. This leaves a balance remaining at the end of the loan term, which the borrower has to repay in one lump sum. In this scenario, the loan will only last for five years, but the amortization schedule anticipates 25 years of payments. Usually, these payments are structured using a normal amortization schedule, just like a conventional loan, but the amortization schedule is longer than the loan term.įor example, a borrower might get a five-year loan with a 25-year amortization. When a lender issues a balloon loan, the loan includes monthly payments that are based on an underlying schedule. In other cases, lenders simply don’t want to provide loans for long terms, sometimes due to the riskiness of the loan, the creditworthiness of the borrower or the dollar value of the asset being financed. In some cases, balloon mortgages can give borrowers access to lower interest payments or interest rates than they’d otherwise get with a long-term loan because short-term balloon loans are less risky for lenders. The borrower simply refinances the loan-sometimes using the same lender. In practice, most balloon payments are paid off with the proceeds of a new loan, rather than with cash. Using these characteristics, the lender calculates the regular monthly (or quarterly) payments to be made by the borrower, as well as the remaining balance that will be owed at the end of the mortgage. Like any other loan, all balloon mortgages contain certain common characteristics, including: This leaves a balance due at the end of the loan term, which the borrower is required to pay. In financing terms, balloon mortgages are not “fully-amortized.” In other words, these loans are structured with monthly payments that would have them paid off over a period of time that is longer than the actual term of the loan. Then, at the end of the term loan, a loan balance remains, which borrowers have to either pay off or refinance. Instead, balloon mortgages are issued for set periods of time, with low monthly payments that may cover just the interest accrued. What Is a Balloon Mortgage?Ī balloon mortgage is a type of loan that isn’t structured to be paid off through normal monthly payments alone. But, while they often aren’t ideal, they’re sometimes the best option available when long-term financing isn’t an option. These loans aren’t often used for consumer financing. Instead, with a balloon mortgage, a considerable portion of the loan amount is due as a single lump-sum payment at the end of the loan term. Cash Back Calculator at mortgages are loans that aren’t completely paid off when the loan ends. You can save (or print out) two different versions of the spreadsheet in order to make comparisons.Ĭheck out the Low APR vs. The auto loan calculators in our spreadsheet let you specify a cash rebate and the annual interest rate. Sometimes, the auto manufacturer offers incentives in the form of a cash rebate or lower interest rate, but usually not both at the same time. However, there are a few online calculators that you could use: Our auto loan calculator spreadsheet does not contain a calculator for comparing leasing vs. We don't provide technical support for creating custom spreadsheets, but if you have some suggestions or comments, please let us know. However, make sure you know how the equations and formulas work before you try to branch out on your own. The spreadsheet has been left unlocked, to give you complete freedom to modify it as needed for your personal use. In the Payment Calculator, you can also enter values in the yellow cells (the Extra Payments column). Basically, you just enter values in the white-background cells, and see what happens to the other numbers. Information about how to use the loan calculators are contained within the spreadsheet itself, mostly as cell comments.
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