Anything to do with loan plans and payments is a nightmare. Do you know the difference between a full or partial amortized loan? Do you understand balloon payments? Read on to find out more.
A partially amortized loan, or balloon payment, is a sum of money you return to the bank in monthly payments. It’s similar to a fully amortized loan. With an entire loan, you repay it in equal monthly payments. For example, you are paying back a $150,000 mortgage over ten years in 120 payments. With a partially amortized loan, you pay back a portion of the loan in monthly payments. You then pay a balloon payment of the remainder at the end. An example of this would be if you asked the bank for $1.5 million at 10 percent interest. Your bank says they will give you that money, but with ten-year maturity and a 30-year amortization schedule. You will pay monthly payments for ten years, but the remainder of the loan in one balloon payment after ten years.
Before you use the partially amortized loan calculator, you have to understand the language. Here are some common terms to know first. Full loan – the money you receive from the bank Ex: $1,500,000 Annual interest rate – the interest rate calculated annually, but paid monthly Ex: 10 percent Amortization time – how you calculate loan payments. E.g., amortization for 30 years, monthly payments Payment period – the period you have to pay the money back Monthly payment – how much you pay every month Payment period total amount – monthly payment collective total Balloon payment – the lump sum you pay after your monthly payments Total – the monthly and balloon payments you paid to the bank To use the calculator, type in these values. You will then know how high your balloon payment will be.