Mortgage Glossary
Balloon Payment
A large lump-sum payment due at the end of certain loan terms — often much larger than regular monthly payments.
What It Means
A balloon payment loan is structured so that you make smaller regular payments for a set period (say 5 or 7 years), but then owe a large remaining balance all at once at the end.
These are uncommon in standard residential mortgages today, but still appear in:
- Some commercial real estate loans
- Certain seller-financing arrangements
- Some older or non-QM mortgage products
The risk is obvious: if you can't make the balloon payment (or refinance before it's due), you could lose the property. Balloon loans can make sense if you're confident you'll sell or refinance well before the balloon comes due.
Real-World Example
"You get a 7-year balloon mortgage. You pay $1,800/month for 7 years, then owe the remaining $280,000 balance all at once. If you haven't sold or refinanced by then, you're in trouble."
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Definitions are for educational purposes only and do not constitute financial or legal advice.