What is Balloon Payment?
A balloon payment is a large, lump-sum payment due at the end of certain loans, after a period of smaller monthly payments that did not fully pay off the balance. Loans with this feature keep early payments low but require the borrower to pay off, refinance, or sell when the balloon comes due. They carry real risk if the money or new financing is not available at that point.
Example: A buyer takes a 7-year loan with low monthly payments, but the entire remaining balance of about $300,000 is due as a single balloon payment in year seven, so they plan to refinance before that date.