Partially Amortized Loan Calculator
A partially amortized loan (also called a balloon loan) sets monthly payments as if the debt would be repaid over a long period, such as 30 years, but the remaining balance comes due all at once at the end of a shorter term, such as 5 or 7 years. Enter your loan amount, interest rate, amortization term, and balloon term to see your monthly payment, total interest paid, the balloon payment, and a full payment-by-payment schedule.
What is a partially amortized loan?
A partially amortized loan is a loan whose monthly payment is calculated as though it will be fully repaid over a long amortization period (often 25 to 30 years), but the unpaid principal balance comes due all at once - the balloon payment - at the end of a shorter loan term, often 5 to 10 years. Because the monthly payment is sized for a long repayment horizon, it is lower than it would be if the same principal were fully amortized over the balloon term. The trade-off is the lump-sum liability at maturity. Partially amortized loans are common in commercial real estate, where lenders want periodic review of the property's performance, and in residential balloon mortgages, where borrowers expect to sell or refinance before the balloon comes due.
How the monthly payment and balloon are calculated
The monthly payment uses the standard fixed-rate amortization formula: P = L x r / (1 - (1 + r)^-n), where L is the loan amount, r is the monthly interest rate (annual rate / 12), and n is the number of payments in the full amortization term. Because n is larger than the actual number of payments made, each payment is lower, but less principal is repaid and more interest accrues on the outstanding balance over the payment period. The balloon payment is simply the remaining balance after the last scheduled payment. It equals what the balance would be on a standard loan at that payment number: L x (1+r)^k - PMT x ((1+r)^k - 1)/r, where k is the number of payments actually made. You can reduce the balloon by making extra principal payments each month.
Partially amortized vs. fully amortized vs. interest-only loans
A fully amortized loan spreads principal and interest evenly so the balance reaches exactly zero at the end of the term - no balloon. An interest-only loan collects only interest each month, so the entire original principal is due at maturity as a balloon. A partially amortized loan sits between the two: monthly payments retire some principal but not all of it, leaving a partial balance (the balloon). Compared to a fully amortized loan of the same term, the partially amortized loan has lower monthly payments but requires the borrower to handle a large lump sum at the end. Compared to an interest-only loan, the partially amortized loan has built up some equity by the time the balloon is due.
Key risks and how to plan for the balloon
The main risk of a balloon loan is refinancing risk: if interest rates rise significantly or the borrower's credit profile deteriorates before the balloon date, refinancing on acceptable terms may be difficult or impossible. Other risks include property value decline (for mortgage-backed loans), which can make it impossible to sell at a price that covers the balloon, and liquidity risk, if the borrower cannot save enough cash to pay the balloon outright. Common exit strategies include refinancing into a new loan before maturity, selling the collateral and using the proceeds to repay the balance, making extra principal payments to reduce the balloon throughout the term, or negotiating a loan extension with the lender. Borrowers should treat the balloon date as a hard deadline and begin planning their exit strategy well in advance.
Common partially amortized loan structures
| Structure | Payment based on | Balloon term | Common use |
|---|---|---|---|
| 5/25 | 25-year amortization | 5 years | Commercial real estate |
| 5/30 | 30-year amortization | 5 years | Residential balloon mortgage |
| 7/23 | 23-year amortization | 7 years | Commercial bridge loan |
| 7/30 | 30-year amortization | 7 years | Residential balloon mortgage |
| 10/25 | 25-year amortization | 10 years | Commercial real estate |
| 10/30 | 30-year amortization | 10 years | Larger residential mortgage |
Typical terms used in commercial real estate and residential balloon mortgages.
Frequently asked questions
What happens if I cannot pay the balloon payment?
If you cannot pay the balloon when it is due, the loan goes into default. Depending on the loan agreement and local law, the lender may begin foreclosure or enforcement proceedings. The most common remedy is to refinance before the balloon date. Borrowers who anticipate difficulty should contact their lender early: lenders sometimes agree to a short-term extension rather than foreclose, but there is no obligation to do so.
Why is the balloon term shorter than the amortization term?
The amortization term determines the monthly payment size. Using a long amortization term lowers the payment, making the loan more affordable each month. The balloon term is the actual contract length - after which the lender wants full repayment. Lenders in commercial real estate, for example, prefer shorter holding periods so they can reassess the property's value and the borrower's creditworthiness more frequently than a 30-year term would allow.
How does an extra monthly payment affect the balloon?
Every extra dollar paid each month reduces the principal balance faster, so the remaining balance - and therefore the balloon - is smaller at maturity. For example, on a 250,000 loan at 6.5% (30-year amortization, 7-year balloon), an extra 200 per month reduces the balloon by roughly 11,000 to 13,000 compared to paying only the base amount. The schedule this calculator generates shows the exact balance month by month so you can see the impact of any extra payment.
Is a partially amortized loan the same as an adjustable-rate mortgage?
No. A partially amortized loan can have a fixed interest rate. The partial amortization refers only to the structure of payments versus maturity: payments retire only part of the debt and a balloon covers the rest. An adjustable-rate mortgage (ARM) has a rate that resets periodically but can be fully amortized (no balloon). Some balloon mortgages do carry adjustable rates, but the two features are independent.
How do I calculate the balloon payment manually?
First find the monthly payment using P = L x r / (1 - (1 + r)^-n), where L is the loan amount, r is the annual rate / 12, and n is amortization months. Then find the remaining balance after k payments (the balloon term in months): Balance = L x (1+r)^k - P x ((1+r)^k - 1)/r. Alternatively, run the full amortization schedule and read the balance in the row for month k.
What is the loan-to-value ratio and why does it matter for balloon loans?
Loan-to-value (LTV) is the loan balance divided by the appraised property value. Lenders cap LTV (often 75 to 80 percent in commercial real estate) because it protects them if values fall. For a balloon loan, if property values decline by the balloon date and you need to refinance, the new lender may find the LTV too high to approve a new loan, leaving you unable to refinance. Monitoring the LTV throughout the loan term - and building equity through extra payments - reduces this risk.