Balloon Mortgage Calculator
The Balloon Mortgage calculator is used to calculate the amount of balloon balance due at the end of the term of the loan. The formula to calculate a balloon balance is a similar formula that is used to calculate the outstanding balance on a mortgage loan.
Balloon Mortgage Calculator
PV x (1+r)n – P x [(1+r)n – 1 / r]
- PV is the present value of Original Balance
- P is the Payment
- r is the rate of interest
- n is the frequency of payments
How to Calculate?
One needs to follow the below steps in order to calculate the monthly installment amounts.
- First, we will calculate the equal periodical installments assuming no balloon repayment, and we shall begin with the principal amount
- Multiply the principal amount or the loan amount by a rate of interest.
- Now, we need to compound the same by rate until the loan period.
- We now need to discount the above result obtained in step 3 by the following:
- After entering the above formula in excel, we shall obtain periodically installments, which are mostly monthly repayments.
Now, there would be a term wherein the loan would be required to pay in full. Take the Loan amount as PrincipalLoan Amount As PrincipalLoan Principal Amount refers to the amount of money loaned by the lender to the borrower. Furthermore, it is the amount on which the lender charges the borrower interest for fund utilization. Value, installment amount as the payment, rate of interest, and insert the same in the above equation discussed above.
The resultant figure would be the balloon paymentBalloon PaymentWhen part repayment of principal loan such as mortgage loan, commercial loan, etc. is agreed to be made at the end of the loan period or at the maturity where the total outflow is higher than the approx. amount payable on the monthly basis since it does not fully amortize over the term of the loan due to its large amount then it is known as balloon payment. required to be made.
Balloon Mortgage Examples
Below are a few examples of the Balloon Mortgage Calculator.
Mr. Zee has taken a Balloon Mortgage loan, which states its term as 10/15, with an annual rate of 7.5% compounded monthly. The loan amount that was borrowed was $132,000. The monthly installment amount that Mr. Zee is supposed to pay comes around $1,223.66
Based on the above information, you are required to calculate the Balloon mortgage amount that shall be required to be paid at the end of the term.
- The term structureTerm StructureThe term structure is the graphical representation that depicts the relationship between interest rates and various maturities. The graph itself is called a “yield curve.” The term structure of interest rates plays an essential part in any economy by predicting the future trajectory of rates. is the loan will be amortized for 15 years, and we need to find out what amount it shall pay at the end of 10 years as a lumpsum payment.
- We can use the below formula to calculate the future value of the balloon payment to be made at the end of 10 years: FV = PV*(1+r)n–P*[(1+r)n–1/r]
- The rate of interest per annum is 7.5%, and monthly it shall be 7.5%/12, which is 0.50%.
= 100,000*(1+0.50%)120–1,223.66 x [(1+0.50%)120–1/0.50%]
- The remaining balance that shall be paid with the final payment will be $61,066.29, which is the balloon payment and has to pay at the end of 10 years.
Company X wanted to buy new properties in a posh area in the city they operate in. But due to the recent hike in property prices, they are unwilling to invest a large amount. Hence, they opt for hiring the properties at leaseLeaseLeasing is an arrangement in which the asset's right is transferred to another person without transferring the ownership. In simple terms, it means giving the asset on hire or rent. The person who gives the asset is “Lessor,” the person who takes the asset on rent is “Lessee.”. They were aware that if they hire property on lease, then the cash outflow will be too high for them. The market rate of interest at which they can borrow is 8%.
Further, they are anticipating higher cash flowers in the near future, say in the next 5 years, and they would be able to purchase the property. Henceforth, they decide to take it on lease and decide to purchase it after 5 years. The term structure of the loan is 5/12, and the value of the property is $270,000. Since the background of the company and directors is too good, they have been offered 100% financing. The monthly installment amount shall be 2,922.62
You are required to calculate the balloon payment that the company shall be required to be made at the end of 5 years, whereas a loan is amortizedLoan Is AmortizedLoan amortization schedule refers to the schedule of repayment of the loan. Every installment comprises of principal amount and interest component till the end of the loan term or up to which full amount of loan is paid off. for 12 years?
- The term structure is the loan will be amortizedLoan Will Be AmortizedThe amortized loan formula is used to calculate the annual or monthly payments a borrower must make to the lender for the loan they have taken out. Annual interest payments plus the annual portion of the long-term debt make up the yearly payment. for 12 years, and we need to find out what amount it shall pay at the end of 5 years as a lumpsum payment.
- We can use the below formula to calculate the future value of the balloon payment to be made at the end of 5 years: FV = PV x (1+r)n – P x [ (1+r)n – 1 / r ]
- The rate of interest per annum is 8.00%, and monthly it shall be 8.00%/12, which is 0.67%.
= 270,000 x (1+0.67%)60 – 2,922.62 x [ (1+0.67%)60 – 1 / 0.67% ]
- The remaining balance that shall be paid with the final payment will be $187,513.27 which is the balloon payment and has to pay at the end of 5 years.
A balloon Mortgage calculator is generally seen in the mortgage market, and the benefit they have is that initially, the required lower payments. Balloon Mortgages can be preferable for those people or firms who have cash flow issues in the near-term, and further, they expect later somewhere in future higher cash flows when the payment for balloon would near. The borrower must be prepared at the end of the loan term to make their balloon payment
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