Balloon Payment Calculator

A balloon loan sets your monthly payment as if you were paying the loan off over a long schedule (often 25 or 30 years), but the contract actually ends much earlier (often 5, 7, or 10 years) with a single large balloon payment for the remaining balance. The low monthly figure comes from the long amortization; the lump sum at the end comes from the short term. Most of your early payments cover interest, so the balance barely moves and the balloon ends up being a large share of the original principal.

Three places stand out in the US. Commercial real estate uses them constantly: a 25-year amortization with a 5, 7, or 10-year balloon is the standard structure for office, retail, and multifamily loans. Business equipment and heavy-truck financing also use balloons (sometimes marketed as residual or TRAC leases) to keep monthly cash flow low. Some auto loans, especially manufacturer-captive offerings on luxury models, run as balloon contracts so the buyer can either refinance, hand the car back, or pay the residual at maturity.

Refinance risk is the big one. If you cannot pay the lump sum out of cash when the balloon comes due, you have to refinance. That works fine when rates are stable or falling, but it can be brutal in a market like 2008 (when commercial credit froze) or 2023 (when rates jumped 4 to 5 percentage points). Property value also matters: if the asset has dropped in value, lenders may refuse to refinance at the original loan-to-value ratio and ask you to bring extra cash to closing. Plan the exit before you sign the loan, not the week the balloon is due.

Because the math uses the long amortization schedule, not the short balloon term. A 7-year fully amortizing loan at $450,000 and 6.5% would cost about $6,700 per month. The same balance and rate, amortized over 30 years with a 7-year balloon, drops the monthly figure to about $2,845. You pay much less month to month, but you also pay down very little principal, which is why a balloon of roughly $400,000 is still owed at the end of year 7.

Three options dominate. First, refinance the remaining balance into a new loan (the most common exit, since most balloon borrowers never intended to pay the lump sum from cash). Second, sell the underlying asset (the property, the equipment, or the vehicle) and use the proceeds to clear the balloon. Third, pay it off from accumulated cash or reserves, which usually only works for small balloons or borrowers who held the loan as a cheap bridge while saving up. A solid plan picks a primary exit and a backup before signing the loan.