Example 8 - Balloon Loan, Unknown Payments

This example applies to our online demo Time Value of Money Calculator. The C-Value! program for Windows works in a similar way and has a few more features. Note, our online demo TVM calculator is limited to calculations using interest rates between 4.0% and 5.99%

Note:This topic has not been proofed and images need to be added. However, we believe that the steps are complete and accurate.

Conventional loan or mortgage with a final known balloon payment amount. Unknown regular periodic payments.

1. Click the [New] button to clear any previous entries.
2. Set "Rounding" to "Ignore" by either:

• clicking on the "Rounding" button on the toolbar;
• clicking on the {Compute} menu choice and select {Rounding...};

1. Set "Compounding" to "Monthly"
2. Enter 6.75% for the "Nominal Annual Rate".
3. Create a "Loan" event in row one of the cash flow input area.

1. 1. Set the "Date" to July 1, 2004 (07/01/2004)
   2. Set the "Amount" to 365,000.00
   3. Set the "# Periods" to 1.

3. Move to the second row of the cash flow input area. Select "Payment" for the "Event" type. For this example, we will assume we want to create a schedule that has a balloon payment in the amount of $250,000, which is due after 5 years (that is, at the 60th monthly payment).

1. 1. Set the "Date" to August 1, 2004 (08/01/2004)
   2. Set the "Amount" to "Unknown"
   3. Set the "# Periods" to 60.

3. Move to the third row of the cash flow input area. Select "Payment" for the "Event" type.

1. 1. The date should be August 1, 2009, which is the end of the 5th year.
   2. Set the "Amount" to $250,000.00
   3. Set the "# Periods" to 1.

3. Calculate the unknown. The regular payment amount required which results in a $250,000 balloon payment after 5 years is $3,689.51.
4. If you want to see a detailed amortization schedule showing how the monthly payment is allocated between principal and interest as well as the final balloon payment amount, click on the "Amortization" tab above the input area.

Back to the online Time Value of Money Calculator.