How to use the balloon payment calculator
Enter the loan amount, rate and amortization that set the payment, then the year the balance comes due. Check interest-only if the borrower pays only interest until the balloon.
- Loan amount ($500,000 default): the amount borrowed, or the note a seller carries.
- Interest rate (7% default): the annual fixed rate.
- Amortization (30 years default): the schedule used to calculate the payment, as if the loan were going to be paid off in full.
- Balloon due after (5 years default): when the remaining balance is due in one payment.
- Interest-only payments (off by default): check this if every payment before the balloon is interest only, which leaves the full loan amount due at the end.
What the results mean
The calculator runs the loan month by month up to the balloon date and returns these numbers:
- Monthly payment: principal and interest on the amortization schedule, or interest only if that box is checked.
- Total paid before the balloon: every monthly payment added together.
- Interest paid before the balloon: the part of those payments that went to interest.
- Principal paid before the balloon: the part that reduced the balance.
- Balloon payment: the remaining balance due on the balloon date.
- Total cost: all payments plus the balloon, which is everything the borrower pays over the life of the loan.
The formulas behind the calculator
The payment uses the standard fixed-rate loan formula, and the balloon is simply the balance left on the schedule after the last regular payment. In the table, r is the annual rate ÷ 12, and each month’s interest is figured on the balance still owed.
| Result | Formula |
|---|---|
| Monthly payment (amortizing) | Loan × r ÷ (1 − (1 + r)^−(amortization years × 12)) |
| Monthly payment (interest-only) | Loan × r |
| Interest each month | Balance at the start of the month × r |
| Principal each month | Payment − that month’s interest |
| Total paid before the balloon | Payment × balloon years × 12 |
| Balloon payment | Balance left after the last scheduled payment |
| Total cost | Total paid before the balloon + balloon payment |
Worked example: a $500,000 loan with a 5-year balloon
With the default inputs, a $500,000 loan at 7% on a 30-year amortization has a monthly payment of $3,326.51. Over the 60 payments before the balloon, the borrower pays $199,590.75 in total. Of that, $170,248.70 is interest and only $29,342.05 is principal.
That leaves a balloon payment of $470,657.95 at the end of year 5, so about 94% of the original loan is still owed. The total cost, payments plus balloon, is $670,248.70.
Switch to interest-only and the payment drops to $2,916.67. Over five years the borrower pays $175,000, all of it interest, and the full $500,000 is due as the balloon, for a total cost of $675,000. The lower payment costs $4,751.30 more in total and leaves $29,342.05 more to refinance.
What is a balloon payment?
A balloon payment is a large, one-time payment of the remaining balance at the end of a loan’s term. The monthly payments before it are set as if the loan ran much longer, so they don’t pay the loan off. The borrower gets a lower payment now in exchange for a big bill later.
The balloon date is the loan’s maturity. Borrowers usually plan to refinance, sell the property or pay it off with cash before then. If they can’t, the loan is in default, and with a mortgage the lender can foreclose.
Where do balloon payments show up?
Balloons are standard in commercial real estate and much less common on owner-occupied homes. On home loans, federal rules generally keep balloon payments out of Qualified Mortgages, with limited exceptions. You’ll most often see them here:
- Commercial and multifamily mortgages, which often amortize over 25 or 30 years but mature in 5, 7 or 10 years.
- Seller financing, where a seller carries a note and sets a balloon so they aren’t waiting decades to be paid in full.
- Construction and bridge loans, which are often interest-only and due in full when the project is finished or leased up.
- Some private and business loans, where the lender wants its money back sooner than a full amortization would allow.
Balloon loan vs fully amortizing loan
The difference between a balloon loan and a fully amortizing loan isn’t the payment, it’s the due date. With the same rate and amortization, both loans have the same payment and the same balance after five years. The fully amortizing loan keeps going until the balance reaches $0, while the balloon loan has to be refinanced or paid off at the balloon date.
| $500,000 at 7% | 5-year balloon, 30-year amortization | 5-year balloon, interest-only | 30-year fully amortizing |
|---|---|---|---|
| Monthly payment | $3,326.51 | $2,916.67 | $3,326.51 |
| Interest paid in first 5 years | $170,248.70 | $175,000.00 | $170,248.70 |
| Principal paid in first 5 years | $29,342.05 | $0 | $29,342.05 |
| Balance at year 5 | $470,657.95, due now | $500,000, due now | $470,657.95, keeps amortizing |
| Total interest if held to the end | $170,248.70 | $175,000.00 | $697,544.49 over 30 years |
| Refinance risk | High at year 5 | Highest at year 5 | None |
What are your options when a balloon payment comes due?
You have five main paths when a balloon comes due, and starting six to twelve months early keeps all of them open. Waiting until the last month usually leaves only the most expensive choices.
- Refinance: take out a new loan to pay off the balloon. This depends on the property’s value, its income and current rates, which may support a smaller loan than you owe.
- Sell: sell the property and pay off the balance from the proceeds. For income property, the sale can also be timed with a 1031 exchange.
- Extension: ask the lender to push back the maturity date, usually for a fee, a paydown, a higher rate or tighter terms.
- Loan modification: renegotiate the loan, for example a new rate, a longer term or a restructured balance. Lenders agree when it looks better for them than a default.
- Pay it off: use cash or other assets to pay the balance, either all at once or as a paydown alongside a smaller refinance.
What are the risks of a balloon loan?
The main risk of a balloon loan is that you may not be able to refinance or sell on good terms when it comes due. Most balloon trouble comes from timing, not from the loan itself, because several things can go wrong at once right when the balance is due:
- Rates rise, so a new loan costs more and may not pass the lender’s DSCR test at the size you need.
- Values fall, so the property no longer supports a loan as large as the balloon at the lender’s maximum LTV.
- NOI drops because of vacancies, rising expenses or deferred maintenance.
- Credit tightens, and lenders cut leverage or pull back from your property type or market.
- A prepayment penalty makes it costly to refinance early, so you’re pushed toward the maturity date.
How a balloon works on a 5+ unit apartment building loan
On an apartment building, the balloon is paid off with a new loan, and that new loan is sized on the building’s NOI, not on what you owe. Lenders usually want the NOI to cover the new payments by a margin, often around 1.25x DSCR, and they also cap the loan at a share of the appraised value.
Say you have the $470,657.95 balloon from the example. To refinance it on a new 30-year amortization at 7.5%, the payment would be $3,290.91 a month, or $39,490.90 a year. At 1.25x, the building would need about $49,364 of NOI to support that loan. If the NOI is lower, the lender lends less than the balloon, and the owner is responsible for the difference.
That’s why owners should run the numbers a year or more before maturity. Use our DSCR calculator and NOI calculator to test a refinance, and the commercial mortgage calculator to compare new loan quotes.
Balloon payments in seller financing
In seller financing, the seller decides when the balloon is due. A seller carrying a note on an apartment building often sets payments on a 20- to 30-year amortization so the buyer can afford them, with a balloon after five to ten years. That gives the seller monthly interest income now and the remaining balance at the balloon date, when the buyer typically refinances.
For tax purposes, a seller who receives payments over time can often report the gain under the installment sale method, with much of it falling in the balloon year. Our seller financing calculator shows the payment, the balloon, the gross profit percentage and the gain reported in the year of sale.
Balloon coming due on your apartment building? Consider selling to Skyline
If you own a 5+ unit apartment building and the balloon is getting close, a sale can pay off the loan before maturity instead of forcing a costly refinance. Skyline Capital Investments buys apartment buildings nationwide as a direct buyer, and we can plan the closing around your loan’s maturity date.
We can also offer seller-carry terms on part of the price and work with 1031 exchange timelines. Send the address and unit count through the form on this page or call (469) 660-2977, and we typically respond within 48 hours.
