Balloon Payment

A “balloon payment” is a large, lump-sum payment that is due at the end of a loan term, typically in a mortgage or other installment loan. Unlike traditional loans where payments are evenly spread over the term, a balloon payment loan involves lower regular monthly payments with the expectation that the remaining balance will be paid off in full of a final, much larger payment at the end.

This type of loan structure is often used in situations where the borrower expects to have access to a significant amount of money at the end of the loan term or plans to refinance or sell the asset before the balloon payment is due. While the initial payments may be more manageable, the borrower must be prepared for the substantial final payment, which can pose a financial risk if they are unable to secure the necessary funds.