How to Calculate an Interest Only Balloon Payment

For many borrowers who may not know about the fine print and detailed terms of different lending agreements, an interest-only balloon payment can be a complicated thing. If you are involved in a balloon loan with a lender, you will probably want to understand how the interest-only balloon payment works and what it represents within the general context of a balloon payment plan. The interest-only balloon payment is often a smaller monthly payment where the principle payment is deferred until a certain future time. Here are some basic steps to calculate an interest-only balloon payment.


  1. Image titled Calculate an Interest Only Balloon Payment Step 1
    Take the total amount financed. The first place to start in figuring out a interest-only balloon payment is to figure out how much you have financed.
    • Subtract any down payments or applicable deductions from your entire financing amount. For example, if you have a mortgage for $170,000, but you already paid $20,000 in a down payment, your adjusted total will be $150,000.
  2. Image titled Calculate an Interest Only Balloon Payment Step 2
    Figure out your interest rate. The interest rate in your balloon loan determines how much you will be paying in interest for a given time period. Your interest rate will be on your loan paperwork and will be expressed in a simple percentage.
    • Make sure that you have a fixed rate of interest. With adjustable interest rate loans, it can be more complex and difficult to figure out your monthly payment.
  3. Image titled Calculate an Interest Only Balloon Payment Step 3
    Apply your interest rate to the term of your interest on the balloon payment. Most of these payments, or mortgages and other common balloon loans, are paid monthly. Some may also be paid biweekly. To get an applicable interest rate, divide your total annual interest rate by the amount of time that represents your individual payment.
  4. Image titled Calculate an Interest Only Balloon Payment Step 4
    Add any extras to your financing amount. When you're calculating your interest-only balloon payment, make sure that you have added any extras that will boost the overall financing amount and make your monthly or biweekly payments higher.
    • Factor in additional mortgage costs. In many mortgages, including balloon loan mortgages, items like property taxes, mortgage insurance, and homeowner's insurance may be included in your regular payments. Even if you are only paying interest, your basic calculation may not represent your total financial liability.


  • Strategize to meet your balloon payment requirement. It's extremely important that the borrower understands the responsibility to pay back the total loan amount at a future time. For example, in many 30-year mortgages that have a balloon payment, the entire principal amount becomes due in 5 to 7 years. This is fine for those who know that they will have the money to pay the balloon payment at that time, but for others, it can be problematic. Make sure you know when your balloon payment is due and that you have the resources to meet this challenge when it presents itself.

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Categories: Mortgages and Loans