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.
What is a Partially Amortized Loan?
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.
How to Use a Partially Amortized Loan Calculator?
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: $1,500,000Annual interest rate – the interest rate calculated annually, but paid monthly
Ex: 10 percentAmortization 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.