How to Calculate a Payment With an Interest Only Balloon Loan
Most people have to take out a loan to purchase their home. One loan option is an interest-only balloon loan. With this type of loan, your monthly payment is smaller because it only covers the interest that accrues on the loan. In addition, at the end of the term of the balloon loan, the entire amount of the loan is due. To calculate the monthly payment on an interest-only balloon you need to know the amount borrowed and the interest rate.
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Instructions
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1
Determine the amount you need to borrow for your interest-only balloon loan.
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2
Find the interest rate that you will pay. You should get quotes from several lenders to find the lowest rate.
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3
Divide the annual interest rate by 1200 to convert the annual interest rate to the monthly interest rate expressed as decimal. For example, an annual interest rate of 7.2 percent will result in a monthly interest rate expressed as a decimal of 0.006.
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4
Multiply the monthly interest rate expressed as a decimal from step 3 times the amount borrowed from step 1 to calculate the monthly payment. For example, if you borrowed $261,000 and the monthly interest rate expressed as a decimal was 0.006, your monthly payment would be $1,566.
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Tips & Warnings
Balloon loans are best for people who are almost certain that they will be moving from their current home before the mortgage ends.
When the balloon mortgage ends, you will owe the entire amount of the mortgage, which will not have decreased because your payments have only covered the interest on the loan.
