How to determine how much principal remains when balloon payment is due

[Aidan Birmingham]

I am closing a seller financing deal but am confused with how monthly payments are split up between principal and interest. How do I determine how much principal is owed at the 10 year mark for the balloon payment? I have looked at amortization tables but the payments seem to be almost 75% interest in the first 10 years. Is there a good way to structure the agreement? 

The terms are below: 

Sale Price: $230,000

- Down Payment: $5,000

- Loan Amount: $225,000

- Interest Rate: 3.75%

- Loan Term: 40 years (480 months)

- Interest-only for the first 1.5 years

-Year 10 ballon payment due: X (Refi Loan with bank)

[Doug Smith]

The answer is $200,619.29. Get yourself an amortization schedule. Use the loan amount and interest rate you mentioned, but subtract off 18 months from 480 months to account for your interest only period. Run that schedule. Then take your 10 year balloon amount and subtract 18 months from that to get 102 months. Look at the balance due after that payment. That's how you figure out the balloon payment. 

Your first 18 months will simply be ($225,000 X 3.75%)/12. Then go to your amortization schedule and month one on that will be month 19 on your pay schedule for the next 462 months (just adding 18 to the number on the amortization schedule. 

Yes, most of the interest will be stacked in the beginning as the balance is much, much higher at that point. In a simple interest amortization, they are paying interest each month on the amount still owed, so the principal part will gradually increase and snowball as the debt is paid down. 

As to structure, have a good creditor rights attorney draft it...not just anyone, but someone with experience working with and for lenders. 

Good luck to you. Let me know if you need any clarification. Doug