Balloon Note Example
Description
How to fill out Promissory Note - Balloon Note?
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FAQ
A balloon payment is a larger-than-usual one-time payment at the end of the loan term. If you have a mortgage with a balloon payment, your payments may be lower in the years before the balloon payment comes due, but you could owe a big amount at the end of the loan.
Last Revised: January 12, 2023. A balloon note is a type of loan where the borrower is required to make regular payments, called interest-only payments, for a specified period. At the end of this term, the borrower must pay off the remaining balance of the loan, called the balloon payment, in one lump sum.
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]
What are two ways to calculate a balloon payment? Find the present value of the payments remaining after the loan term. Amortize the loan over the loan life to find the ending balance.
Let's say a person takes out a $200,000 mortgage with a seven-year term and a 4.5% interest rate. Their monthly payment for seven years is $1,013. At the end of the seven-year term, they owe a $175,066 balloon payment.