Finding the balloon balance of a particular loan is a strategic method for calculating the remaining balance at the end of a balloon loan. A balloon loan is also commonly referred to as a balloon note. Balloon loans are widely used in many different situations. Balloon loans are calculated for consecutive payments; however, the loan will be paid off before the scheduled end payment date. If a loan is spread out over 30 years, such as a mortgage, the balloon loan must be paid in full after ten years. The remaining balance of the loan is due at the end of the ten years. This is a typical example of a balloon loan that is used today.
This type of loan system can be referred to as a 10/30 balloon. The most common type of balloon loan is for leases and mortgages. Rents and mortgages have the terms necessary to be used with balloon loans. The amount of funds due at the end of the loan is calculated as the remaining balance. Conventional loans can also have a remaining balance, in which case they are similar to balloon loans.
Another popular example of a ballot loan is when a $100,00 loan is issued, the mortgage payment is 5/15. This ratio is specifically calculated for balloon loans, in comparison to a conventional loan. The annual rate for $100,000 is 6%. The annual rate is compounded monthly. If the overall payment formula is based on amortization for 15 years, the monthly payments would be estimated at $843. This is an essential piece of information to consider when looking into a balloon mortgage or lease loan. The payments are still broken up into proportional, equivalent pay periods; however, the loan’s balance is expected to be paid before the end of the loan term,
Loan Balloon Balance
Balloon loans are also subject to other fees such as property taxes and homeowner’s insurance. Property tax and homeowner’s insurance are included when a payment is made. The monthly payments reflect the balance of the actual loan, not added taxes and fees. This equation also factors in the first payment due a month before the start of the loan. It is also common for interest to be included in the closing cost of the mortgage or lease. In the scenario of a 5/15 loan, the loan will be amortized within 15 years. The present value would be $100,000. There will be 60 months for this specific $100,000 balloon loan. The remaining balance in the 5/15 loan would be estimated at $76,000. The remaining balance would be due at the end of the 60 months. For this specific loan, the balloon balance is paid after the 60th payment has been made.
If the loan were paid every month, it would take 60 months to complete this balloon loan. Balloon loans do not have to be paid monthly, they can be paid bi-weekly, annually, or other specific terms agreed upon by the agency loaning the funds. However, it is essential to note that balloon loans are usually calculated monthly.