Partially Amortized Loan

Partially amortized loans are when the repayment schedule of a loan calls for a series of payments followed by a balloon payment at maturity.

For example, a lender might agree to a 30-year amortization schedule with a provision that at the end of the tenth year all the remaining principal be paid in a single balloon payment. The advantage to the borrower is that for 10 years his monthly payments will be smaller than if he completely amortized his loan in 10 years. However, the disadvantage is that the balloon payment due at the end of the tenth year might be his financial downfall. Just how large that balloon payment will be can be determined in advance by using a loan progress chart. Presuming an interest rate of 15½% and a 30-year loan, at the end of 10 years the loan progress chart, shown below, shows that for each $1,000 originally loaned, $964 would still be owed. If the original loan was for $100,000, at the end of 10 years 100 x $964 + $96,400 would be due as one payment. This qualifies it as a balloon loan. 

Loan Progress Chart
Balance Owing On A $1,000 Amortized Loan   
15½% Annual Interest

A loan progress chart is not only useful for determining in advance the amount of the final payment in a partially amortized loan, but also for determining what portion of a fully amortized loan remains to be paid at any given moment in time. For example, a $10,000 amortized loan originally made for 30 years at 9½% interest is 6 years old. How much of the loan has been paid off and how much remains to be paid? In the loan progress chart below, enter the column marked “30” under the heading “original life in years.” Then under “age of loan” find the 6-year line. Where they intersect you will find the number $953. This means that for each $1,000 of original loan, $953 remains to be paid. For a $10,000 loan, multiply by 10 and you will find that $9,530 remains to be paid. As you can see, on amortized loans with long maturities, relatively little of the debt is paid off during the initial years of the loan’s life. Nearly all the early payments go for interest, so that little remains for principal reduction. 

Loan Progress Chart
Balance Owing On A $1,000 Amortized Loan   
9½% Annual Interest

Partially Amortized Loan To Package Mortgage