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Analyzing Balloon Payment Loans
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You specify balloon payment loans like fixed rate loans, with the additional specification of the balloon payments. Assume you have an alternative to finance the $100,000 investment with a 15-year balloon payment loan. The annual nominal rate is 7.5%, as in the fixed rate loan. The terms of the loan require two balloon payments of $2000 and $1000 at the 15th and 48th payment periods, respectively. These balloon payments keep the periodic payment lower than that of the fixed rate loan. The balloon payment loan is defined by the following BALLOON statement:
proc loan start=1998:12;
balloon amount=100000 rate=7.5 life=180
balloonpayment=(15=2000 48=1000)
label = 'BANK2, with Balloon Payment';
run;
List of Balloon Payments
In addition to the information for the fixed rate loan, the "Loan Summary Table" for the balloon payment loan includes a list of balloon payments in the list of rates and payments. For example, the balloon payment loan described previously includes two balloon payments, as shown in Figure 16.2.
Figure 16.2
List of Rates and Payments for a Balloon Payment Loan
The periodic payment for the balloon payment loan is $23.76 less than that of the fixed rate loan.
