How Balloon Loans Work: Payments and the Final Lump Sum

Published October 12, 2026

Free tool: Balloon Loan Calculator→

A balloon loan has low regular payments and one large payment at the end. The payments are calculated as if the loan ran for a long time, often 30 years, but the remaining balance falls due much sooner, for example after 5 or 7 years. This guide shows how big that final payment is and how to plan for it, using the free Balloon Loan Calculator.

How a balloon loan works

• Payments are based on a long amortization schedule, so they stay low.
• The balloon is whatever balance remains at the due date, paid in one lump sum.
• Some balloon loans are interest-only, so the balloon is the entire amount borrowed.

Balloon loans are mostly used for commercial real estate, business loans and seller financing. They're uncommon for US home loans today, but some lenders still offer them.

Example: $200,000 at 7%

A $200,000 loan at 7%, with payments on a 30-year schedule and a balloon after 7 years:

• Monthly payment: $1,330.60
• Balloon with the 84th payment: $182,294.83, so 91.1% of the loan is still owed
• Interest paid before the balloon: $94,066
• Total paid, including the balloon: $294,066

Over seven years you repay less than $18,000 of the principal, because early payments on a 30-year schedule are mostly interest.

With interest-only payments, the payment drops to $1,166.67, but the full $200,000 is due at the end and you pay $98,000 of interest. A 5-year balloon on the original terms leaves $188,263.18 to pay.

Planning for the balloon

Few borrowers can pay the balloon from savings. The usual plans are to:

1. Refinance into a new loan before the balloon falls due.
2. Sell the property and pay off the balance.
3. Pay down the balance with extra payments or lump sums along the way.

The risk is that the plan fails: rates may be higher when you need to refinance, the property may be worth less, or your income may have changed. Start arranging the payoff well before the due date, and know what happens if you can't pay, which for a secured loan can mean losing the property.

Balloon loan vs fully amortizing loan

A fully amortizing 30-year loan at 7% has the same $1,330.60 payment but no balloon, because the balance reaches zero after 30 years. So a balloon loan isn't cheaper each month than a 30-year loan at the same rate. Its appeal is usually a lower rate or easier approval for a shorter commitment. If a lender offers one at a lower rate, weigh the savings against the cost and risk of refinancing later. The Loan Calculator shows the fully amortizing version.

How to use the Balloon Loan Calculator

1. Open the Balloon Loan Calculator.
2. Choose the payment type: principal and interest, or interest only.
3. Enter the loan amount, the interest rate and the amortization period the payments are based on.
4. Enter when the balloon is due.
5. Read the results: the balloon payment, the monthly payment, the interest paid before the balloon and the total paid, with a balance chart, a breakdown of where your money goes and a year-by-year schedule.

Frequently asked questions

How is a balloon payment calculated?

It's the balance left after the regular payments. $200,000 at 7% on a 30-year schedule leaves $182,294.83 after 7 years.

Why is the balloon so large?

Because the payments are based on a much longer schedule. In the early years of a 30-year schedule, most of each payment is interest, so the balance falls slowly.

What if I can't pay the balloon?

Most borrowers refinance or sell before it's due. If neither works, talk to the lender early about an extension; missing the balloon payment is a default.