Balloon Payment Understanding the Final Large Loan Payment

855 reads · Last updated: December 25, 2025

A balloon payment is the final amount due on a loan that is structured as a series of small monthly payments followed by a single much larger sum at the end of the loan period. The early payments may be all or almost all payments of interest owed on the loan, with the balloon payment being the principal of the loan. This type of loan is known as a balloon loan.The balloon home mortgage loan became common in the years before the 2007-2008 financial crisis. It allowed people eager to buy a home to obtain a mortgage payment that they could afford, at least in the early years.The balloon loan did not disappear with the financial crisis but is now more often used for business loans. A project can be financed with a loan that allows for minimal payments early on, with the balloon payment due only when the project is earning a return on the investment.The balloon payment is similar to a bullet repayment.

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