What this measures
Many seller-financed notes set the payment on a long amortization, such as 30 years, so it stays affordable, then make the remaining balance due after a few years. That lump sum is the balloon. The buyer usually pays it by refinancing or selling.
The schedule shows each payment split into interest and principal and the balance left after it. The balloon is the balance left after the regular payment in the balloon month. Interest-only months pay no principal, so the balance does not move until they end.
This page does not include property taxes, insurance, escrow, servicing fees, late fees, or closing costs. Federal and state rules can limit balloons and require licensed loan originators on owner-occupied home sales, so have a real estate attorney review the note.
Formula
Amount financed = sale price − down payment. Monthly rate = annual rate ÷ 12. Interest-only payment = amount financed × monthly rate.
Principal-and-interest payment = balance × r ÷ (1 − (1 + r)^−n), where r is the monthly rate and n is the months left on the amortization after any interest-only period. Balloon = balance remaining after the payment in the balloon month.
Example
Example
The sample sale price, down payment, rate, 30-year amortization, and 5-year balloon below are a check of that math. Monthly payment is $1,796.32. Balloon in month 60 is $254,155.29. Amount financed is $270,000.
Illustrative example. The price, down payment, and terms are sample inputs so the math is visible. They are not a property, a buyer, or a note RE Underwrite Lab wrote.
Example
Second example
Illustrative example. A $200,000 sale with $20,000 down leaves $180,000 financed. At 8% interest-only for 5 years with a 5-year balloon, the payment is $1,200 a month, because 180,000 × 0.08 ÷ 12 = 1,200. No principal is paid, so the balloon is the full $180,000 and interest over the 5 years is $72,000. These figures are made up. They are not the sample in the form above.
When this ratio misleads
A low payment on a long amortization can hide a large balloon. If the buyer cannot refinance or sell when the balloon comes due, the payment that looked affordable does not matter. Interest-only years make the balloon larger still.
Common pitfalls
Confusing the amortization with the balloon. A 30-year amortization with a 5-year balloon has a 30-year payment but the whole remaining balance is due in year 5.
Leaving taxes, insurance, and servicing out of the buyer's monthly cost. This payment is principal and interest only, so a buyer's real housing cost is higher.
Questions
How is a seller financing payment calculated?
The amount financed is the sale price minus the down payment. The payment is the standard amortizing formula on that amount, at the rate and amortization you type. During interest-only years it is the amount financed times the rate divided by 12.
What is a balloon payment in seller financing?
It is the unpaid balance that comes due at a set date before the note would pay off on its own. This page shows it as the balance left after the regular payment in the balloon month.
What does 30-year amortization with a 5-year balloon mean?
The payment is figured as if the note ran 30 years, but the remaining balance is due after 60 payments.
How does the interest-only option work?
For the interest-only years you type, each payment is interest only and the balance stays flat. After that, the balance is paid down over the rest of the amortization, so the payment goes up.
Is this a loan offer or legal advice?
No. It is arithmetic on the numbers you type. Rules on balloons, licensing, and disclosures vary by state and by whether the buyer will live in the home. Talk to a real estate attorney.