Choosing a loan plan can definitely cause a headache. What is the difference between a fully and partially amortized loan? What is a balloon payment? You can learn all about it below.
What is a partially amortized loan (balloon payment)?
You probably know what is a fully amortized loan. Let's assume you want a loan of $1,000,000 with a 10% annual interest to be paid back during 10 years (120 months). You will have to repay this loan in 120 equal monthly payments.
In an partially amortized loan, only a part of the sum must be returned in monthly payments. An additional lump sum, called a balloon payment, is paid to the bank at the end date of the loan. For example, imagine you want a loan of $1,000,000 with a 10% interest. The bank agrees for a 10-year maturity with 30 years amortization schedule. That means that you will have to pay 10-year worth of payments in monthly payments, and the rest aften 10 years in one balloon payment.
How to use the partially amortized loan calculator
You need to know what all the terms used in our calculator mean:
- Full loan: It's simply the loan you take from the bank - for example, $1,000,000.
- Annual interest rate: Even though you pay back the loan on a monthly schedule, the interest rate is annual. You can learn more about it in our mortgage calculator.
- Amortization time: Loan payments are calculated for this amount of time. For example, if your amortization is 30 years, monthly payments are planned as if there were 360 of them.
- Payment period: Time in which you pay back the loan on a monthly basis. It must be shorter that the amortization period for a partially amortized loan.
- Monthly payment: How much you need to pay back each month.
- Total paid during payment period: How much you paid in total in monthly payments.
- Balloon payment: The lump sum paid additionally after the payment period is over.
- Total: It's the sum you paid back to the bank - a sum of all monthly payments and the balloon payment.
Type the values of full loan, interest rate, amortization time and payment period to find out how high the balloon payment will be.