How to determine how much principal remains when balloon payment is due
Member since 2021 · 33 posts · 13 votes
How to determine how much principal remains when balloon payment is due
Most Popular Reply
Doug SmithPro Member
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votesThe 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
16 Replies
- 3yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
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
- Member since 2021 · 33 posts · 13 votes3yThanks for the detailed response Doug. This all makes sense to me. I was planning on working with a real estate attorney to finalize the agreement. Do you recommend also working with an creditor rights attorney?
Quote from @Doug Smith:
The answer is $264,616.16. 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
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
Quote from @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)
The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual value is.
7e investments53 Reviews - Member since 2021 · 33 posts · 13 votes3yThe Zillow estimate has it at $235,000. But then rents are currently greatly under market and seller has decided price, interest rate, and balloon payment. I am asking for low down payment, long loan length, and interest only first 18 months to allow property to stabilize and adjust rents ect.
Quote from @Chris Seveney:
Quote from @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)
The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual value is.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
Quote from @Aidan Birmingham:
The Zillow estimate has it at $235,000. But then rents are currently greatly under market and seller has decided price, interest rate, and balloon payment. I am asking for low down payment, long loan length, and interest only first 18 months to allow property to stabilize and adjust rents ect.Quote from @Chris Seveney:
Quote from @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)
The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual value is.
I would get an appraisal done on the property as well, zillow values are typically worthless. My house is off by $300,000 in one direction and my neighbors is $300,000 in the other.
7e investments53 Reviews - Member since 2021 · 33 posts · 13 votes3y
Quote from @Chris Seveney:
Quote from @Aidan Birmingham:
The Zillow estimate has it at $235,000. But then rents are currently greatly under market and seller has decided price, interest rate, and balloon payment. I am asking for low down payment, long loan length, and interest only first 18 months to allow property to stabilize and adjust rents ect.Quote from @Chris Seveney:
Quote from @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)
The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual value is.
I would get an appraisal done on the property as well, zillow values are typically worthless. My house is off by $300,000 in one direction and my neighbors is $300,000 in the other.
I agree Zillow estimate is not the end all be all but I am not as concerned with the exact value. I am focused on cash flow and I own a property close by and am familiar with the area.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesWhy are you not concerned about the exact value? You are trying to be a REI right? ALL EXACT values are important. How does "knowing the area" exempt you from needing to know the "exact value"?
Quote from @Aidan Birmingham:
Quote from @Chris Seveney:
Quote from @Aidan Birmingham:
The Zillow estimate has it at $235,000. But then rents are currently greatly under market and seller has decided price, interest rate, and balloon payment. I am asking for low down payment, long loan length, and interest only first 18 months to allow property to stabilize and adjust rents ect.Quote from @Chris Seveney:
Quote from @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)
The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual value is.
I would get an appraisal done on the property as well, zillow values are typically worthless. My house is off by $300,000 in one direction and my neighbors is $300,000 in the other.
I agree Zillow estimate is not the end all be all but I am not as concerned with the exact value. I am focused on cash flow and I own a property close by and am familiar with the area.
- Member since 2021 · 33 posts · 13 votes3y
Quote from @Joe Villeneuve:
Why are you not concerned about the exact value? You are trying to be a REI right? ALL EXACT values are important. How does "knowing the area" exempt you from needing to know the "exact value"?Quote from @Aidan Birmingham:
Quote from @Chris Seveney:
Quote from @Aidan Birmingham:
The Zillow estimate has it at $235,000. But then rents are currently greatly under market and seller has decided price, interest rate, and balloon payment. I am asking for low down payment, long loan length, and interest only first 18 months to allow property to stabilize and adjust rents ect.Quote from @Chris Seveney:
Quote from @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)
The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual value is.
I would get an appraisal done on the property as well, zillow values are typically worthless. My house is off by $300,000 in one direction and my neighbors is $300,000 in the other.
I agree Zillow estimate is not the end all be all but I am not as concerned with the exact value. I am focused on cash flow and I own a property close by and am familiar with the area.
I have looked at comparable properties, I own a similar property very close by, I have consulted with real estate professionals, and done my due diligence. I am comfortable with the price the seller is asking and it allows me to cash flow. I do not feel the need to pay for an appraiser.
- 3yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @Aidan Birmingham:
Thanks for the detailed response Doug. This all makes sense to me. I was planning on working with a real estate attorney to finalize the agreement. Do you recommend also working with an creditor rights attorney?Quote from @Doug Smith:
The answer is $264,616.16. 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
It's pretty much one in the same. You want an attorney that is accustomed to working with lenders and doesn't have to go pull their law books to research how to write a note and mortgage. Creditor Rights defends banks in foreclore/loan related cases. A real estate attorney does title, etc. Often times they do both. Just make sure they've written loan docs and what they charge to do it.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Doug Smith:
Quote from @Aidan Birmingham:
Thanks for the detailed response Doug. This all makes sense to me. I was planning on working with a real estate attorney to finalize the agreement. Do you recommend also working with an creditor rights attorney?Quote from @Doug Smith:
The answer is $264,616.16. 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
It's pretty much one in the same. You want an attorney that is accustomed to working with lenders and doesn't have to go pull their law books to research how to write a note and mortgage. Creditor Rights defends banks in foreclore/loan related cases. A real estate attorney does title, etc. Often times they do both. Just make sure they've written loan docs and what they charge to do it.
I would think the sellers attorney or rep would prep the docs and you would review and approve its not common for the buyer to prep the docs as there is a huge conflict of interest there.
Just like when i am doing a HML i would never let my borrower prep the docs .. they pay to have them done but if i dont personally do the docs ( which I do most the time) i want to engage the attorney so they are working for me not the borrower.
- Member since 2021 · 33 posts · 13 votes3y
Quote from @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
After reading this a second time I am confused by why month 1 for interest and principal payments would be month 19. I plugged the numbers into a TVM calculator and got the following:
Monthly payments after interest only 18 month period- $921.01
Then for the ballon payment I got - $198,873.04
- 3yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votesThere’s no amortization (pay down) for months 1-18 and the balance doesn’t change, so you would subtract 18 from 480 (40 years) to put into the term. Your 10 year ballon is up only 102 months after the interest only period is up (120-18) so that balance on that date is your balloon payment. The remaining months on the amortization schedule become irrelevant, does that make sense?
Quote from @Aidan Birmingham:
Quote from @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
After reading this a second time I am confused by why month 1 for interest and principal payments would be month 19. I plugged the numbers into a TVM calculator and got the following:
Monthly payments after interest only 18 month period- $921.01
Then for the ballon payment I got - $198,873.04
- Member since 2021 · 33 posts · 13 votes3yYes that makes sense now. In that case are my calculations above from the TVM calculator correct?
Quote from @Doug Smith:
There’s no amortization (pay down) for months 1-18 and the balance doesn’t change, so you would subtract 18 from 480 (40 years) to put into the term. Your 10 year ballon is up only 102 months after the interest only period is up (120-18) so that balance on that date is your balloon payment. The remaining months on the amortization schedule become irrelevant, does that make sense?Quote from @Aidan Birmingham:
Quote from @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
After reading this a second time I am confused by why month 1 for interest and principal payments would be month 19. I plugged the numbers into a TVM calculator and got the following:
Monthly payments after interest only 18 month period- $921.01
Then for the ballon payment I got - $198,873.04
- 3yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votesI’m actually at a charity event. PM me and I’ll run #s for you tomorrow.
Quote from @Aidan Birmingham:
Yes that makes sense now. In that case are my calculations above from the TVM calculator correct?Quote from @Doug Smith:
There’s no amortization (pay down) for months 1-18 and the balance doesn’t change, so you would subtract 18 from 480 (40 years) to put into the term. Your 10 year ballon is up only 102 months after the interest only period is up (120-18) so that balance on that date is your balloon payment. The remaining months on the amortization schedule become irrelevant, does that make sense?Quote from @Aidan Birmingham:
Quote from @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
After reading this a second time I am confused by why month 1 for interest and principal payments would be month 19. I plugged the numbers into a TVM calculator and got the following:
Monthly payments after interest only 18 month period- $921.01
Then for the ballon payment I got - $198,873.04
- Member since 2021 · 33 posts · 13 votes3yThanks a lot!
Quote from @Doug Smith:
I’m actually at a charity event. PM me and I’ll run #s for you tomorrow.Quote from @Aidan Birmingham:
Yes that makes sense now. In that case are my calculations above from the TVM calculator correct?Quote from @Doug Smith:
There’s no amortization (pay down) for months 1-18 and the balance doesn’t change, so you would subtract 18 from 480 (40 years) to put into the term. Your 10 year ballon is up only 102 months after the interest only period is up (120-18) so that balance on that date is your balloon payment. The remaining months on the amortization schedule become irrelevant, does that make sense?Quote from @Aidan Birmingham:
Quote from @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
After reading this a second time I am confused by why month 1 for interest and principal payments would be month 19. I plugged the numbers into a TVM calculator and got the following:
Monthly payments after interest only 18 month period- $921.01
Then for the ballon payment I got - $198,873.04
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
You can run this on a amortization calculator. Plug in all the numbers and it will tell you exactly what the balance is when you are at your balloon. You are going to have to run it with a 1.5 year delay for the interest only.
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