Understanding the Mathematics of Personal Finance

BALLOON LOANS

A balloon loan is one in which the term of the loan (i. e., the number of payments) is just a number on which the monthly payments is calculated. After a relatively small number of years (5 or 10), the loan suddenly “balloons,” and the entire balance is then due in one lump payment. Assuming that you don ’ t happen to have this money in the bank, you can suddenly find yourself scrambling for a new loan with which to pay off the old loan. If this happens to you, hope that interest rates have gone down, or at least haven’t gone up very much since you took the loan.

tn my spreadsheet, on either tab, the balloon payment at a given payment number is just the balance plus the monthly payment (remember that the balance entry is the outstanding loan balance after the monthly payment has been made).

Looking at Table 4.3, for example, the loan payoff amount at payment number 72 is $163,160.39 + $1,526.20 = $164,686.59.