Question

A common arrangement in real estate lending might call for a 5 year loan with, say, a 15 years amortization. What this means is that the borrower makes a payment every month of a fixed amount based on a 15 year amortization. However, after 60 months, the borrower makes a single, much larger payment called a “balloon’ or “bullet” to pay off the loan. Because the monthly payments don’t fully pay off the loan, the loan is said to be partially amortized.

Suppose we have a $100,000 commercial mortgage with a 12 percent APR and a 20 year (240 month) amortization. Further suppose the mortgage has a five year balloon.

1)What will the monthly payment be?

2)How big will the balloon payment be?

Answer 1

1: Using financial calculator
Input: PV = -100000, N=240, I/Y=12/12=1

Solve for PMT as 1101.09

2: Balloon payment =

91744.33

Workings

1	Monthly payment	$1,101.09
2	Amount repaid in 5 years	-8255.67
	Balance loan	91744.33

Book1- Excel AutoSave Oi Sign in Comments Share O Tell me what you want to do File Home Formulas Review View Help Insert Draw Page Layout Data Σ X Insert A A Calibri General 11 Delete Sort & Find & Filter Select Conditional Format as Cell Paste B IU A Format T T Formatting Table Styles Clipboard Alignment Number Styles Cells Editing Font г. B7 T A В C D E F G Monthly payment =PMT(1%,40, 100 2 1 Amount repaid in 5 years CUMPRINC(1%,240,100000, 1,60,0) 4 2 Balance loan 5 -100000+C4 6 7 8 9 10 11 12 13 14 15 16 17 Sheet1 Sheet2 +100 % Ready e ENG х‑ P2 (? 5:30 AM