The payment that arrives later
Explain amortization and why a balloon payment changes financing risk.
Materials: calculator page, paper or this response sheet, and a basic calculator. “Keep for comparison” preserves up to three scenarios while that calculator tab stays open.
Prepare the fictional setup
Click “Load example” in the calculator before starting. The first scenario is fictional and may intentionally show a difficult financial outcome.
Complete setup reference
| Price paid to seller ($) | 450000 |
|---|---|
| Buyer down payment (%) | 20 |
| Seller-financed share of price (%) | 20 |
| Bank annual interest rate (%) | 10 |
| Bank amortization / payoff (years) | 10 |
| Cash-paid transaction & loan fees ($) | 15000 |
| Extra working capital / reserves ($) | 30000 |
| Seller annual interest rate (%) | 6 |
| Seller amortization (years) | 10 |
| Seller payoff / balloon at year | 5 |
| Annual cash available for debt service ($) | 150000 |
Typed responses stay in this tab. Save a PDF to keep your work. Do not enter real household or student financial information.
Warm-up · 5 minutes
Would you prefer a smaller payment now if a large balance came due later? What else would you need to know?
Investigate · 25–40 minutes
Step 1
Load the business-financing example and identify the buyer cash, bank loan and seller note.
Step 2
Record the monthly payment and seller balloon at year five. Explain why a balance remains.
Step 3
Keep the scenario. Change the seller payoff year to ten and compare the balloon and total interest.
Step 4
Write a cash plan for the five-year balloon without assuming that refinancing is guaranteed.
Discuss & reflect · 10 minutes
Can a low monthly payment hide a large future obligation?
Extension
Set the seller rate to 0%. Check by hand that a $90,000 ten-year note pays $750 monthly and owes $45,000 after five years.
Teacher guide and assessment
Expected reasoning
The $450,000 example uses $90,000 buyer down payment, a $270,000 bank loan and a $90,000 seller note. A ten-year amortization repaid at year five leaves a balloon; setting the payoff to year ten amortizes it fully.
Use the calculator’s breakdown to check rounding. The teacher explanation is tied to the fictional setup above, not to any learner’s edited scenario.
Quick assessment · 6 points
- 2 points: accurate calculations with units and labeled scenarios.
- 2 points: explains how changing one assumption changes the result.
- 2 points: supports a conclusion with evidence and names a limitation.
Support: work through one scenario together and use a simple table. Challenge: ask the learner to find a counterexample or solve a target by hand. These are flexible suggested grade bands, not a standards-alignment claim.
Methods & sources
Formula explanations, assumptions and source links are on the calculator page. This is an educational activity, not a recommendation to borrow, invest or make a purchase.