How to calculate a promissory note with a balloon payment

Question

I have a property that I intend to carry the mortgage for. My exit strategy is to sell this note to a note buyer, so I am trying to write this in a way that they will appreciate.

Here are the numbers. Please tell me if you know how to calculate it?

100,000 purchase price 
20,000 down payment
80,000 loan amount
10% interest rate amortized over
30 years 
30,000 balloon payment in five years

What is the payment amount for this (not including taxes and insurance)?

Thank you!!!

Loc R. · Answer

No. If the payor refis, the investor still gets his/her balloon.

Loc R. · Answer

Angela,

The appeal of this particular note would depend on the payor's credit score and his/her actual potential to come up with that balloon payment.

Angela Carter · Answer

Would it make a difference if the borrower told the note buyer that they would be refinancing to pay off the loan by time the balloon is due?

Jon Holdman · Answer

Payment on $80K at 10% for 30 years is $702.06.  You can calculate that with a financial calculator or in Excel. In Excel, the formula is: -PMT(10%/12,30*12,80000)

After five years, the balance on the loan will be $77,259.46.  You calculate that with the FV function:
=-FV(10%/12,5*12,-702.06,80000)

Not quite sure what your intention is after the $30K payment.  Typically a balloon payment would mean the entire loan must be paid at that time. So a "five year balloon" would mean the loan is to be paid off after five years.

So, maybe you mean the payments continue at the same $702.06 payment after the $30K payment.  If so, the question is how many payments remain.  You would calculate that with the NPER (number of periods) function:
=NPER(10%/12,-702.06,47259.46)

The answer is 99 payments plus a partial payment would still need to be make.

If instead you meant you want the loan to only have $30K remaining balance after five years, then you need to use a shorter amortization than 30 years.  In that case you would calculate the payment using the PMT function and a future value of $30K after five years.  That payment is $1,312.35, which equates to a 85.5 month amortization period.

Angela Carter · Answer

Jon,

Thank you so much for the math lesson. Learned a lot about Excels functions.

I guess a better way to ask the question would be:

80,000 loan amount 
10% int amortized over 30 years 
with a balloon in 5 years. 
Whatever that balloon balance might be at that point.

Thanks again, for the help!

Angela Carter · Answer

Thanks again.

So 702.06 per month for 60 months and the last payment of 77,259.46 as a balloon. Does this sound attractive for a note buyer?

Jon Holdman · Answer

So, then its easy.  Its just the $702.06 payment.  The balloon payment doesn't change the monthly payment.  The payment is determined only by the rate, loan amount and the amortization period.  The balance after five years is $77,259.46.