# Amortization & balloon

Canonical: https://chicagocommercialfunding.com/tools/amortization-and-balloon/

See monthly payments, interest expense and the maturity balance.

## Model inputs and hypothetical defaults

- Loan principal ($): 1800000
- Annual interest rate (%): 7
- Amortization (years): 25
- Loan term (years): 5

## How the model works

Monthly payment uses the standard level-payment amortization formula. Balloon equals outstanding principal after the scheduled term payments.

## Worked illustration

A $120,000 loan at 0% interest with ten-year amortization pays $1,000 monthly. After five years, its balloon balance is $60,000.

## Read term and amortization separately

Amortization determines the scheduled payment; the term determines when the remaining balance must be addressed. A five-year loan amortized over twenty-five years does not pay itself off in five years. This model makes the scheduled principal balance visible at maturity so you can evaluate the required refinancing, sale or additional equity.

Use the note’s actual payment convention for a transaction. The calculation assumes equal monthly periods, a constant annual nominal rate divided by twelve, and payments at each month-end. Daily interest, interest-only phases, future draws, rate resets, curtailments and irregular first periods require a different schedule. A lender payoff statement can include accrued interest and charges beyond principal.

## Test the future takeout

Change the amortization while holding principal and rate constant. Longer amortization generally reduces scheduled payments and leaves more principal at the same maturity. Compare the cash retained during the hold with the larger takeout requirement. Neither effect alone establishes which loan produces the better investment.

Next, compare the maturity balance with conservative future proceeds from the loan-sizing and refinance tools. Use income, tenant expirations, capital condition and value appropriate to that future date. A positive current cash-on-cash return does not ensure the balloon can be refinanced. The zero-interest case still repays principal over the amortization schedule; a zero payment assumption would be incorrect.

## Limitations

No fees, rate changes, odd first periods, day-count adjustments or partial prepayments. The interest-only payment is shown separately.

The canonical HTML page provides the interactive calculator. Inputs stay in the browser; hypothetical defaults are not current financing terms. Distinguish operating income, debt service, capital expenditures and investor distributions.

## Research and related reading

- [Source material](https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html)
- [Term, amortization and the balloon](https://chicagocommercialfunding.com/guides/commercial-loan-term-versus-amortization-versus-balloon/)
- [Plan for an insufficient takeout](https://chicagocommercialfunding.com/guides/maturity-gaps-when-refinance-proceeds-cannot-repay-the-loan/)