A Balloon Loan Calculator is a tool that can give you an idea about the monthly mortgage payment, total interest paid, and the balloon payment that you would have to spend on a balloon loan. There are several parameters that the calculator takes as input to provide information about the fields mentioned above. The Balloon Loan Calculator is pretty easy to use and is a part of a broader set of calculators that include the Salary Calculator and Pay Raise Calculator. You can get a complete list of the calculators offered by clicking on this link.
Let us take a look at how the Balloon Loan Calculator calculates the monthly mortgage payments for a balloon loan.
How To Calculate Monthly Mortgage And Balloon Payments For A Balloon Loan?
First, let us take a quick look at the various parameters involved in the calculation and go over a simple example to understand the underlying logic.
The principal or loan amount is the essential constituent of a loan. It is the amount of money you have borrowed and against which all of the calculations are done. A more substantial loan amount indicates a more significant monthly payment, leading to a larger final balloon payment.
Annual Interest Rate
The Annual Interest Rate is the percentage calculated using the loan amount, and the result of this calculation has to be paid back along with the principal. The lender fixes the Annual Interest Rate before granting a loan.
The Amortization Period is the time over which the calculator calculates the mortgage repayments for the loan. It takes on a value that has a unit of months. Be sure to convert the amortization period of your balloon loan if it has the unit of years.
Number Of Payments
As the name suggests, the Number of Payments field indicates the period over which you have to make the monthly mortgage payments. The balloon payment then follows it. It takes on a value that has the unit of months. For the Amortization Period’s fixed value, increasing the value of the Number of Payments decreases the total interest paid. For example, consider a loan amount of 20,000 dollars billed at an annual interest rate of 7.5%. The amortization period is sixty months. The number of payments is forty-eight, and the interest-only field takes on a value of Yes. The total interest paid works out to be 1,330.74 dollars. Now consider the same parameters but let the number of payments be thirty-six. The overall interest paid in this case is 1,388 dollars. It is visible that increasing the number of payments decreases the total interest paid.
The Begin Date indicates the start date of the monthly mortgage payments.
The interest-only field takes on two values, namely – Yes and No. A value of No indicates that monthly mortgage payments are only made based on the total interest paid back with no contribution from the principal loan amount. On the other hand, a value of Yes indicates that there is a contribution from the principal loan amount and the monthly mortgage payments, apart from the interest amount paid monthly. A value of Yes reduces the final balloon payment made once you complete the monthly mortgage payments.
The Monthly Payment is the first field that the Balloon Loan Calculator outputs. It is the amount of money that has to be paid towards the loan every month. As explained above, an interest-only parameter value of Yes indicates that the monthly payment has no contribution from the principal. On the other hand, an interest-only parameter value of No suggests a contribution from the principal.
The Balloon Payment is the second field that the calculator outputs. It is the final payment that you have to fulfill once you complete all the monthly payments. The main idea behind a balloon loan is that you have to repay smaller sums over time, followed by the balloon payment, which is comparatively a more significant chunk.
The Total Payments is the third field that the Balloon Calculator outputs. It is the sum of the principal loan amount and the total interest paid towards the loan.
Total Interest Paid
The final field that the calculator outputs is the Total Interest Paid. It is the extra sum of money that you have to pay along with the principal loan amount to complete the repayment of a loan.
Now that we’ve taken a good look at the various parameters involved, let us take a quick look at a small example to understand the calculator’s inner workings.
Consider the Loan Amount to be 20,000 dollars. The billed Annual Interest Rate is 7.5%. Consider the Amortization Period to be sixty months and the Number of Payments to be twelve. The Begin Date is 12-06-2020, and the Interest Only field takes the value of Yes. Since the annual interest rate is 7.5%, and the number of payments is for 12 months, which is a year, the total interest works out to be 0.075*20000, which is 1,500 dollars. The balloon payment, in this case, is 20,000 dollars.
Similarly, if we increase the Number of Payments to 24 months, the total interest is 1,444.84. The calculations for it are a bit more complicated. Fortunately, as the calculator user, you do not have to worry about all of this. The Balloon Loan Calculator does all the heavy lifting for you. All you have to do is, input the parameters and take a call on whether or not to apply for the loan. If you’ve already applied for the loan, you can use the calculator to figure out your payments and ensure you’re up to date on your mortgage repayments.
The Balloon Loan Calculator is a great way to calculate monthly mortgage repayments if you choose to apply for a balloon loan. It also helps you ensure that you’re paying the right amount of money towards your mortgage repayment if you’ve already taken a loan. It simplifies the process by abstracting the background details behind the complex calculations involved so that you can only focus on how much you have to pay.