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;

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 17.2.

Figure 17.2: List of Rates and Payments for a Balloon Payment Loan

The LOAN Procedure

Rates and Payments for BANK2, with Balloon Payment | |||
---|---|---|---|

Date | Nominal Rate | Effective Rate | Payment |

DEC1998 | 7.5000% | 7.7633% | 903.25 |

Balloon Period | Payment |
---|---|

MAR2000 | 2000.00 |

DEC2002 | 1000.00 |

The periodic payment for the balloon payment loan is $23.76 less than that of the fixed rate loan.