Question

Still don't think this is right.
Mortgage is for $300,000 for 30 years, Fixed interest rate = 7% per year.
Annual payments = $23,500

At end of 30 years, must make balloon payment. How much is the balloon payment?

My teacher said it will be like making 3 payments at the end.

Answer 1

I am not familiar with a "balloon payment" since I am not from the US, but I will take a stab at the math.

Amount owing after 30 years
= 300000(1.07)^30 - 23500( 1.07^30 - 1)/.07
= $ 63,848.80

Is this the balloon payment?
It is appr 3 times the annual payment of 23,500

The actual annual payment needed to pay off the $300,000 in 30 years would have been
300000(.07)/( 1 - 1.07^-30)
= $24,175.92 , our payment of $23,000 was not enough so clearly there would have been a balance at the end of the year.
Confirm if this is what is meant by the "balloon payment"