How to Calculate a Balloon Payment

A balloon note quotes two time periods: an amortization period that sets the payment (say, 30 years) and a due date when the whole remaining balance must be paid (say, 5 years). "Amortized over 30, due in 5" means you make 30-year-sized payments for 60 months, then owe everything left in one lump sum.

The three-step calculation

1. Compute the payment on the full amortization: payment = P × r ÷ (1 − (1 + r)⁻ⁿ) where P is the principal, r the monthly rate, and n the total amortization months (360 for 30 years).
2. Amortize month by month: interest = balance × r; principal = payment − interest; new balance = balance − principal.
3. Stop at the balloon date: the balance remaining is the balloon payment.

Worked example

$300,000 at 7% amortized over 30 years gives a payment of about $1,996/month. After 60 payments, only about $17,400 of principal has been repaid — the balloon due at year 5 is roughly $282,600. Early payments are mostly interest, which is why 5-year balloons on 30-year amortizations barely dent the balance.

There's also a closed-form shortcut — the remaining balance after k payments is P(1 + r)^k − payment × ((1 + r)^k − 1) ÷ r — but you rarely need it: the investment calculator and seller financing calculator show the balloon amount and date prominently and truncate the schedule for you.

Interest-only balloons

If the note is interest-only, no principal is ever repaid — the balloon equals the original loan amount. That maximizes monthly cash flow for the lender and keeps the buyer's payment low, but the full principal cliff never shrinks.