How to Calculate a Balloon Mortgage Payment

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By eHow Contributing Writer

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A balloon mortgage, in many ways, appears to be much like a 30-year fixed-rate mortgage. The monthly payments on the balloon mortgage are determined as if the loan were to be paid off in 30 years. The difference is a balloon mortgage only finances the home for a set period, usually 5 to 7 years. After the finance term, the balance on the mortgage is due in full.

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Difficulty: Easy

Instructions

Step 1

Find a mortgage calculator to use for calculating the payments and to see how much the balance is going to be on the mortgage when the balloon comes due. You can borrow a mortgage calculator if you stop in a local or bank or realtor's office, but the easiest way to gain access to one is on the Internet. There are several available for use free of charge.
Step 2

Enter the full mortgage amount into the calculator. The enter the number of years that your balloon mortgage is for, typically this is 5 to 7 years, but some balloons might be shorter or longer terms.
Step 3

Put in the interest rate of your loan and then choose the type of prepayments you have made, if any. Enter the dollar amount of the prepayment.
Step 4

Click the calculate button and wait for the next page to load with your results. The amount of the monthly payment is shown, as well as the amount that you owe to the mortgage holder at the end of the loan term.

Tips & Warnings

Some balloon mortgages are also called reset mortgages. With these loans, at the time of securing the loan, the lender has agreed that if you can not pay off the balance of the loan when the balloon comes due, he resets the mortgage to a traditional mortgage on previously agreed terms.
One of the advantages of taking a balloon mortgage is that they are typically offered as a lower interest rate. If you are financing your home when interest rates are high, use the balloon mortgage to buy yourself 5 to 10 years then refinance during a period of lower rates.
If your mortgage lender does not offer a reset option on your balloon or if you do not like the reset terms and want to refinance with another lender when the balloon payment comes due, be sure to line up financing in advance. Several months before you balloon payment is due, contact mortgage lenders to get rate quotes.

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