Balloon Payment
Defined by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
A balloon payment is a large lump-sum payoff due at the end of a short-term loan whose monthly payments were too small to retire the full balance.
What Balloon Payment means
Balloon loans usually carry payments calculated on a 30-year schedule but mature in five to seven years, leaving most of the principal owed at the end. Borrowers must refinance, sell, or pay the balloon in cash.
Florida example
A Florida investor takes a seven-year balloon on a $300,000 property with payments based on 30-year amortization. At year seven, roughly $265,000 comes due at once. If they can't refinance, they risk default, so an exit plan is essential.
A large final payment
A balloon payment is a big lump sum due at the end of certain loans. Your monthly payments stay low, but the full remaining balance comes due on one final date.
These loans suit borrowers who expect to sell, refinance, or come into money before the balloon date arrives.
The risk to plan for
The danger is reaching the balloon date without a way to pay it. If you cannot refinance or sell, you could face a payment you cannot cover.
Balloon loans are not for everyone. Reach out and we will show you safer options, like a fixed-rate loan, before you commit.