Planning for a balloon payment? Use our 5 year balloon mortgage calculator to estimate your low monthly payments during the initial term and prepare for the lump sum balance due at the end of year 5.
5 year balloon mortgage calculator
5 year balloon mortgage calculator Formula
A balloon mortgage calculation involves two steps. First, we calculate the monthly payment based on the longer amortization schedule (e.g., 30 years). Second, we calculate the remaining balance after the 5-year term.
2. Balance = P [(1+i)^n – (1+i)^p] / [(1+i)^n – 1]
Variables
- M: Monthly Payment.
- P: Loan Principal.
- i: Monthly Interest Rate.
- n: Total Amortization Months (e.g., 360 for 30 years).
- p: Balloon Term Months (60 for 5 years).
Related Calculators
- Interest Only Mortgage Calculator
- 30 Year Mortgage Calculator
- Commercial Mortgage Calculator
- Refinance Breakeven Calculator
What is a 5 Year Balloon Mortgage Calculator?
A 5 year balloon mortgage calculator is essential for borrowers considering “5/25” or “5/30” loans. In these arrangements, your monthly payments are calculated as if the loan will last for 25 or 30 years (the amortization term), keeping them low and affordable.
However, the catch is that the entire remaining balance must be paid off in full at the end of the 5th year. Borrowers typically plan to sell the property or refinance the loan before this “balloon” payment comes due.
How to Calculate a 5 Year Balloon Payment (Example)
- Set Loan Details: Enter a $200,000 loan at 6% interest amortized over 30 years.
- Calculate Monthly: The calculator finds the monthly payment (~$1,199).
- Track Principal: For 60 months (5 years), a small portion of each payment reduces the principal.
- Find Balance: At month 60, the calculator determines the remaining principal (e.g., ~$186,000). This is your Balloon Payment.
Frequently Asked Questions (FAQ)
They often come with lower interest rates than standard fixed-rate loans because the lender is only locking up their money for 5 years. This can save you money if you plan to move quickly.
You must pay the full remaining balance in cash. Most people achieve this by selling the home or refinancing into a new mortgage.
Not necessarily lower than a 30-year fixed loan if the rates are the same, but the rate offered on a balloon product is usually lower, which lowers the payment.
Some loans have a “reset option” (e.g., 5/25) that allows you to extend the rate for the remaining term at current market rates if you meet certain conditions, but you must check your specific contract.