Balloon Payment

A balloon payment is a large final payment due at loan maturity, significantly exceeding regular installment amounts, common in short-term financing where principal is not fully amortized during the loan term.


Structure CharacteristicsTerms
Payment patternSmall regular payments plus large final
Principal reductionMinimal during term
Final payment50-90% of original principal typical
Refinancing expectationUsually required at maturity
Common ApplicationsUse Case
Bridge loans6-24 month terms
Commercial property5-7 year terms with balloon
Developer financingConstruction to permanent transition
Investment propertyShort-hold strategy
Risk ConsiderationsFactor
Refinancing riskMarket conditions at maturity uncertain
Property valueMust support refinancing amount
Interest rate riskMust support Higher rates reduce refinancing optionsamount
Exit planningSale or refinance required

Related Terms

Bridge LoanDeveloper Financing Interest-Only Mortgage Loan RestructuringMaturity Date

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