How is the balloon payment calculated?

The balloon payment is the remaining principal balance after the last regular payment. In this calculator, we assume the payment is based on a longer amortization period than the actual loan term. We compute the standard amortizing payment for the amortization period, then calculate the outstanding balance after the number of payments in the shorter balloon term. That remaining balance is the balloon payment.

Is a balloon loan risky?

Yes. Balloon loans carry refinancing and payment risk because you must either pay a large lump sum at the end or refinance the loan. If interest rates rise, your income falls, or credit conditions tighten, you may not be able to refinance on good terms or at all. Regulators in many countries restrict balloon features on consumer mortgages for this reason.

When does a balloon loan make sense?

Balloon loans can make sense for borrowers who are confident they will sell the asset or receive a large cash inflow before the balloon date, or for businesses that want lower payments in the early years of an income-producing asset. They are more common in commercial real estate, equipment finance, and some auto loans than in owner-occupied home mortgages.

What is the difference between a balloon loan and an interest-only loan?

In an interest-only loan, you pay only interest during the interest-only period, so the full principal is due later (often as a balloon or after the loan converts to amortizing payments). In a balloon loan with amortizing payments, you pay both interest and some principal each period, but not enough to fully pay off the loan by maturity, so a smaller remaining principal balance is due as a balloon payment.

Balloon Loan Calculator

Calculate balloon loan payments, balloon amount, total interest, and compare against a fully amortizing loan.

Balloon loan inputs

Loan amount

Annual interest rate

Loan term until balloon

When the balloon payment is due.

Amortization period

Used to compute the regular payment (e.g., 30 years).

Payment frequency

Optional extra payment per period

Applied to principal each period; reduces the balloon.

Results summary

Balloon loan

Regular payment: $0.00
Number of payments: 0
Balloon payment: $0.00
Total paid (payments + balloon): $0.00
Total interest: $0.00

Fully amortizing comparison

Payment (same amortization): $0.00
Total interest (no balloon): $0.00
Interest difference: $0.00

This assumes you keep the loan for the full amortization period with the same rate.

Principal vs. interest breakdown

Balloon loan share

Principal repaid before balloon $0.00

Principal in balloon $0.00

Green bar shows the share of principal paid before the balloon.

Effective term & rate

Effective loan term: 0 years
Payments as % of loan: 0%
Balloon as % of loan: 0%

Balloon loan amortization schedule

#	Payment	Interest	Principal	Extra	Balance
Run a calculation to see the amortization schedule.

What is a balloon loan?

A balloon loan is a loan that does not fully amortize over its term. You make regular payments for a set period, but at maturity a large balloon payment is still due to pay off the remaining principal. Balloon structures are common in:

Commercial real estate loans (e.g., 5/25 or 7/30 mortgages)
Equipment financing and business loans
Some auto loans with residual or balloon options

Key terms and formulas

1. Regular payment (based on amortization period)

Let:

$P$ = loan amount (principal)
$r$ = periodic interest rate (annual rate ÷ payments per year)
$N_a$ = total number of payments in the amortization period

The standard fixed payment for a fully amortizing loan is:

$ \text{Payment} = P \cdot \dfrac{r(1+r)^{N_a}}{(1+r)^{N_a} - 1} $

2. Remaining balance and balloon payment

Let $N_b$ be the number of payments until the balloon date. The remaining balance after $N_b$ payments (with the same payment amount) is:

$ B_{N_b} = P(1+r)^{N_b} - \text{Payment} \cdot \dfrac{(1+r)^{N_b} - 1}{r} $

This remaining balance $B_{N_b}$ is the balloon payment (before any fees).

3. Total interest paid

Over the balloon term, total interest is:

$ \text{Total interest} = \text{Total of all payments} + \text{Balloon} - P $

Pros and cons of balloon loans

Advantages

Lower regular payments compared with a fully amortizing loan of the same size and rate.
Can improve short-term cash flow for businesses or investors.
Useful if you expect to sell the asset or refinance before the balloon date.

Risks and drawbacks

Refinancing risk: you may not qualify for a new loan when the balloon is due, or interest rates may be much higher.
Payment shock: the balloon can be very large relative to your regular payment.
Regulatory limits: in many countries, consumer mortgage rules restrict or discourage balloon features because of the risk to borrowers.

How to interpret your results

Regular payment: what you owe each period during the balloon term.
Balloon payment: the lump sum you must pay or refinance at maturity.
Total interest: the cost of borrowing over the balloon term.
Principal in balloon: how much of the original loan is still unpaid at the end.

If the balloon payment is more than you could realistically save or refinance, consider a fully amortizing loan or making extra principal payments to reduce the balloon.

Strategies to manage balloon risk

Plan to sell the asset before the balloon date and use the sale proceeds to pay it off.
Make regular extra principal payments to shrink the balloon over time.
Build a dedicated sinking fund (savings account) for the balloon amount.
Refinance well before maturity if market conditions are favorable.