what is a balloon loan

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A balloon loan is a type of loan that includes lower monthly payments in exchange for a larger one-time payment at the end of your loan term. If you plan to finance your car purchase, you may be offered the option of a balloon loan.

A balloon mortgage is a loan in which most or all of the principal is repaid on a predetermined date. While balloon mortgages are seldom found in conventional loans, they are common in commercial and rental home loans.

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What Is a Balloon Loan? Also commonly referred to as a "balloon mortgage payment," a balloon loan operates much like a standard mortgage payment. The borrower is expected to make the normal monthly payments back to the lender over a set period of time. For a balloon loan, that range is usually five to seven years.

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What is a balloon payment? Quite simply, a balloon payment is a lump sum payment that is attached to a loan. The payment, which has a higher value than your regular repayment charges, can be applied at regular intervals or, as is more usual, at the end of a loan period.

A balloon payment mortgage can be looked at as a combination loan. In the beginning, the loan is a traditional interest-only loan. During this time, you will pay a regular payment each month; if the loan is a fixed-rate mortgage , the payments will be identical each month, but if you took out an adjustable-rate mortgage , your payments may vary.

At the end of the term you have what is called a balloon payment that you can either pay off with cash or refinance into a new loan or line of credit. You also can pay off and reuse this credit.

A balloon loan is a loan that you pay off with a single, final payment. Instead of a fixed monthly payment that gradually eliminates your debt, you typically make relatively small monthly payments. But those payments are not sufficient to pay off the loan before it comes due.

A balloon loan is repaid in a shorter amount of time than. Carabelli, Carl. "What to Do When a Commercial Loan Matures." Small Business – Chron.com,