Land Loan Calculator
The payment is built on twenty years. The balance is due in five. This shows you both.
The parcel
The loan
Land lenders typically want 20 to 50 percent down and price a point or two above a comparable mortgage, because there is no building to foreclose on.
Assumptions
Monthly carry
$1,293.46
$1,093.46 payment plus taxes
Balloon due at year 5
$111,040
11.87% of principal retired by then
You will still owe 88.13% of what you borrowed. The payment is built on a 20-year schedule but the balance is due in 5. You need a sale, a refinance, or the cash — arranged before then, not after.
| Loan amount | $126,000 |
|---|---|
| Down payment | $54,000 |
| Principal & interest | $1,093.46 |
| Principal retired by the balloon | $14,96011.87% of the loan |
| Interest paid by then | $50,648 |
| Annual carry | $15,521 |
| Total carry to the balloon | $77,607 |
| Of which buys no equity | $62,648Interest and taxes — land produces no income to offset it |
| Total cash outlay | $246,148Down, closing, carry and the balloon itself |
Estimates only. Land lending terms vary widely by lender, parcel and intended use — raw, unimproved and lot loans price very differently, and many lenders will not write them at all. Not a loan commitment or an offer of credit.
The payment is not the commitment
A land loan looks like a mortgage on the term sheet and behaves like something else entirely. Two structural differences do all the damage, and neither is visible in the monthly payment.
The first is the balloon. The payment is calculated over a long amortization — twenty years on the default scenario — but the loan matures far sooner, here at year five. Those are two different schedules, and the gap between them is enormous. Over five years of payments you retire about 11.9 percent of the principal. The other 88 percent falls due on a single day, in cash, whether or not you have a plan.
That is not a trap in the sense of being hidden — it is written in the note. It is a trap in the sense that people plan around the payment, which is affordable, and not around the maturity, which may not be. The exits are refinance, sale, or default, and the first two depend on a lender’s appetite and a parcel’s value at a moment five years from now that nobody controls. Arrange it going in.
The second difference is that land produces nothing. A rental has a tenant covering most of the carry. A parcel has taxes, interest, and whatever it costs to keep it mowed and insured — all of it out of pocket, every month, indefinitely.
The scale of that surprises people. On the default scenario five years of carry comes to about $77,600 — more than the $54,000 down payment. Of that, roughly $62,600 is interest and taxes, which buys no equity whatsoever. Only the principal portion becomes ownership, and there is not much of it.
Add it up and the total cash outlay to hold this parcel for five years and retire the balloon is around $246,000 on a $180,000 purchase. The land has to appreciate substantially, or be entitled or subdivided into something worth materially more, for that to work. Land is a development play or a long-horizon bet — it is not a hold that pays for itself, and the arithmetic above is the reason.
If the plan is to build, the construction loan calculator picks up where this one leaves off — and note that carrying the land for years before breaking ground is itself a cost the project has to absorb.
Methodology
- Payment is the level amount over the amortization schedule, not the maturity.
- Balloon balance = L(1+i)ᵐ − P((1+i)ᵐ − 1)/i, where m is months to maturity. Computed as an exact rational.
- Carry = payment + taxes ÷ 12, per month. Dead money is interest plus taxes — everything that does not become equity.
- Total cash outlay = down payment + closing costs + total carry + the balloon itself.
Excluded: insurance, maintenance, road or utility assessments, entitlement and survey costs, interest-only or seller-financed structures with non-standard amortization, and any appreciation. Setting the balloon equal to the amortization models a fully amortizing loan.
Frequently asked questions
- How do land loans differ from a mortgage?
- Bigger down payment, higher rate, shorter maturity, and usually a balloon. Lenders price land harder because there is no building to foreclose on and no income to service the debt — if it goes wrong they are left with a parcel and a slow sale. Twenty to fifty percent down is common, a point or two above a comparable mortgage is normal, and many lenders will not write raw land at all.
- What is a balloon payment on a land loan?
- The whole remaining balance, due on the maturity date. The monthly payment is calculated on a long amortization — twenty or thirty years — but the loan matures in three to seven, so very little principal is retired before the balance falls due. On the default scenario you still owe about 88 percent of what you borrowed when the balloon arrives at year five.
- What happens if I cannot pay the balloon?
- You refinance, sell, or default — and the first two are not guaranteed. A refinance depends on the lender's appetite and the parcel's value at that moment, neither of which you control. This is the single largest risk in land financing, and the time to arrange the exit is before you buy rather than in the last six months.
- Why does carry matter so much on land?
- Because land produces no income. Every month of interest and taxes comes out of pocket with nothing offsetting it — unlike a rental, where a tenant pays most of the carry. On the default scenario five years of carry exceeds the entire down payment, and about $62,600 of it buys no equity at all.
- Can I put less than 20% down on land?
- Occasionally, and usually only for an improved lot with utilities and an approved plat, or through seller financing. Raw, unentitled acreage generally requires more down rather than less. If a lender is willing to go low on a raw parcel, the rate typically reflects it.
- Is seller financing common on land?
- More common than on improved property, because the pool of institutional lenders is small and sellers often hold land free and clear. Terms are negotiable in a way bank terms are not, and the balloon is often shorter. The arithmetic on this page works the same either way — enter the seller's rate and maturity.
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