A common arrangement in real estate lending might call for a 5 year loan with, say, a 15 years amortization. What this means is that the borrower makes a payment every month of a fixed amount based on a 15 year amortization. However, after 60 months, the borrower makes a single, much larger payment called a balloon or bullet to pay off the loan. Because the monthly payments dont fully pay off the loan, the loan is said to be partially amortized.

Suppose we have a $100,000 commercial mortgage with a 12 percent APR and a 20 year (240 month) amortization. Further suppose the mortgage has a five year balloon.

1)What will the monthly payment be?

2)How big will the balloon payment be?