Table of Contents### Working with a Balloon Loan

Entire Site

Many loans are set up so that the payments take care of only a portion of the principal, with the remainder due as an end-of-loan balloon payment. This balloon payment is the future value of the loan, so you need to factor it into the `PMT()` function as the `fv` argument.

You might think that the `pv` argument should be the partial principal—that is, the original loan principal minus the balloon amount. This seems right because the loan term is designed to pay off the partial principal. That's not the case, however. In a balloon loan, you also pay interest on the balloon part of the principal. That is, each payment in a balloon loan has three components: