A balloon loan can be an excellent option for many borrowers. A balloon loan is usually rather short, with a term of three to five years, but the payment is based on a term of up to 15 years. There is, however, a risk to consider. At the end of your loan term, you will need to pay off your outstanding balance. This usually means you must refinance your loan or convert the balloon loan to a traditional loan at the current interest rates.
- Loan amount
- Original or expected balance for your loan.
- Interest rate
- Annual interest rate for this loan.
- Loan term in years (balloon period)
- The time period after which you must refinance or payoff your loan. The most common balloon loan terms are 3 years and 5 years. After the loan term is complete, you will then need to refinance or pay off the remaining balance.
- Amortization period
- The number of years over which your loan payment is calculated.
- Monthly payment
- Monthly principal and interest payment (PI). The monthly payment is calculated using a term up to 15 years.
- Total payments
- Total of all monthly payments over the term of the balloon loan. This total payment amount assumes that there are no prepayments of principal.
- Total interest
- Total of all interest paid over the term of the balloon loan. This total interest amount assumes that there are no prepayments of principal.