Balloon Mortgage Calculator

The Balloon Mortgage calculator is used to calculate the amount of balloon balance which is 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]

Wherein,

PV is the present value of Original Balance
P is the Payment
r is the rate of interest
n is the frequency of payments

ROI (r)

How to Calculate?

One needs to follow the below steps in order to calculate the monthly installment amounts.

Step #1 – First, we will calculate the equal periodical installments assuming no balloon repayment, and we shall begin with the principal amount

Step #2 – Multiply the principal amount or the loan amount by rate of interest.

Step #3 – Now, we need to compound the same by rate until the loan period.

Step #4 – We now need to discount the above result obtained in step 3 by the following:

Step #5 – After entering the above formula in excel we shall obtain periodically installments which are mostly monthly repayments.

Step #6 – Now there would be a term wherein the loan would be required to pay in full. Take Loan amount as Principal 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 payment required to be made.

You can download this Balloon Mortgage Calculator Excel Template here – Balloon Mortgage Calculator Excel Template

Below are a few examples of the Balloon Mortgage Calculator.

Balloon Mortgage Examples

Example #1

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.

Solution:

The term structure is 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 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%]

= 61,066.29

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.

Example #2

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 big amount. Hence, they opt for hiring the properties at lease. 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 nearby 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 amortized for 12 years?

Solution:

The term structure is loan will be amortized 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 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% ]

= 187,513.27

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.

Conclusion

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