Question

Assume you have taken out a partially amortizing loan for $1,250,000 that has a term of 7 years but amortizes over 20 years. Calculate the balloon payment if the interest rate on this loan is 7.25%.

Answer 1

Yearly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                       1,250,000
Rate of interest per period:
Annual rate of interest		7.2500000%
Frequency of payment	=	Once in 12 month period
Numer of payments in a year	=	12/12 =	1
Rate of interest per period	R	0.0725 /1 =	7.2500%
Total number of payments:
Frequency of payment	=	Once in 12 month period
Number of years of loan repayment	=	20.00
Total number of payments	N	20 × 1 =	20
Period payment using the formula	=	[ 1250000 × 0.0725 × (1+0.0725)^20] / [(1+0.0725 ^20 -1]
Yearly payment	=	$                                                    120,293.55

Loan balance	=	PV * (1+r)^n - P[(1+r)^n-1]/r
Loan amount	PV =	1,250,000.00
Rate of interest	r=	7.2500%
nth payment	n=	7
Payment	P=	120,293.55
Loan balance	=	1250000*(1+0.0725)^7 - 120293.55*[(1+0.0725)^7-1]/0.0725
Loan balance	=	991,278.35

Answer is:

991,278.35

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