The balloon, and every year before it.
Most commercial real estate loans amortize over 25 or 30 years but mature in 5, 7 or 10, so a large balance is due at the end. Enter the loan amount, rate, amortization, term and any interest-only years to see the monthly payments, the balloon at maturity and the full schedule by year, ready to download as a CSV.
- Monthly payment, interest-only years
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- Monthly payment, amortizing
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- Total interest over the term
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Why commercial loans end in a balloon
A commercial loan's payment is usually set as if the loan would be repaid over a long amortization schedule, which keeps the payment affordable, while the loan itself matures much sooner. Whatever principal has not been repaid by maturity is due in one payment: the balloon payment.
Borrowers almost never write that check from cash. They refinance or sell. That is why lenders size the balloon at origination, test whether the property could refinance it at maturity, and track maturity dates across the portfolio.
A worked example
A $5,000,000 loan at 7 percent with a 25-year amortization and a 10-year term has a monthly payment of $35,339. After ten years the borrower has repaid $1,068,330 of principal and owes a balloon of $3,931,670.
Add two years of interest-only at the start and the picture changes. The payment is $29,167 a month for the first two years, then $35,339 once amortization starts. Only eight years of principal are repaid, so the balloon rises to $4,208,719. Stretch the amortization to 30 years with no interest-only period and the payment falls to $33,265, with a balloon of $4,290,619.
| Structure | Monthly payment | Balloon at year 10 |
|---|---|---|
| 25-year amortization | $35,339 | $3,931,670 |
| 2 years interest-only, then 25-year amortization | $29,167, then $35,339 | $4,208,719 |
| 30-year amortization | $33,265 | $4,290,619 |
How to read the schedule
Each row is one loan year: total payments, the interest and principal inside them, and the balance at year end. Early years are mostly interest, because interest is charged on a balance that has barely moved. The final row's ending balance is the balloon. The CSV download carries the same rows, so the schedule can go straight into a credit memo or a servicing file.
The balloon is a refinancing test
A lender approving a loan with a large balloon is betting that, at maturity, the property's income will support a new loan at least as large as the balloon. If rates are higher or income is lower then, the property may only qualify for less, and the gap has to come from the sponsor. Running the balloon through the debt yield calculator at today's NOI is a quick check on that risk.
Questions lenders ask
- How do you calculate a balloon payment?
- Calculate the monthly payment on the amortization period, then find the balance still owed after the number of payments made by maturity. That remaining balance is the balloon. On $5M at 7% with 25-year amortization, the balance after 120 payments is $3,931,670.
- Does an interest-only period make the balloon bigger?
- Yes. No principal is repaid during the interest-only years, and amortization runs for fewer years before maturity, so more of the loan is left to pay at the end.
- What is the difference between amortization and term?
- Amortization is the period used to set the payment. Term is when the loan actually matures. When the term is shorter than the amortization, the unpaid balance at the end of the term is the balloon.
- Can a balloon payment be avoided?
- Only by a loan that fully amortizes within its term, or by prepaying principal along the way. In practice, commercial borrowers plan to refinance or sell before maturity, so the real question is whether the property will qualify for a new loan large enough to retire the balloon.
- Is this the same as a residential balloon mortgage calculator?
- The math is the same, but this one is set up for commercial structures: interest-only periods, amortization longer than the term, and a yearly schedule you can drop into an underwriting file.
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