Balloon Loan Calculator

A balloon mortgage is a type of short-term loan that involves making regular mortgage payments for a few years, followed by a lump sum payment to settle the remaining balance. This last payment is called a “balloon payment” because it is a much larger amount compared to the monthly payments you have been making. 

This free balloon mortgage calculator estimates your monthly and balloon payments. You can also see how making additional payments, called “prepayments,” reduces your balloon payment and the total interest you’ll pay.

Balloon Mortgage Overview

Most balloon mortgages last 5 to 7 years and have lower interest rates than long-term loans like 15 or 30-year mortgages. Despite having a lower interest rate, monthly payments on a balloon mortgage are the same as they would be for a 30-year loan (with an equivalent interest rate) until the balloon payment at the end.

Since few borrowers can afford the balloon payment, they usually refinance the loan or sell the property when the last payment comes due. 

Who is a balloon mortgage good for?

Balloon mortgages are non-qualified mortgage loans. As determined by the Dodd-Anne Frank Act introduced after the 2008 financial crisis, non-qualified mortgage loans are riskier than more commonly known qualified mortgages (QM). 

Despite the higher risk, balloon mortgages can still be beneficial for certain types of borrowers: 

  • Short-term homeowners: A balloon mortgage may benefit borrowers who plan to live in a home for a relatively short period. You can take advantage of lower monthly payments without being concerned about the final balloon payment since you intend to sell the property before it’s due.
  • Investors: Real estate investors who plan to buy properties and remodel them, then sell for a profit within a few years might find balloon mortgages attractive. You can minimize your monthly payments during the holding period and pay off the loan when you sell the property.
  • Borrowers with irregular income: Buyers with irregular but substantial income streams may appreciate the ability to make minimal payments when funds are tighter. 

A balloon mortgage can be a strategic tool to save money and invest. But, if you’re unable to sell or refinance the property before the balloon payment is due, you’ll likely face financial strain and the risk of losing the property through foreclosure

Therefore, carefully considering your financial situation and plans is essential before opting for a balloon mortgage. It’s also highly recommended to speak with a financial advisor. 
For the most accurate balloon mortgage estimate, get pre-approved today.