What is a balloon mortgage?

Mortgages are the loans most commonly associated with balloon payments. Balloon mortgages typically have short terms ranging from five to seven years. However, the monthly payments through this short term are not set up to cover the entire loan repayment. Instead, the monthly payments are calculated as if the loan is a traditional 30-year mortgage.

What is a balloon payment?

The balloon payment may be a weighted payment amount or, under an interest-only payment plan, be the full balance of the principal due. As the term "balloon" suggests, the final payment on this type of loan is significantly large. In recent years, balloon payments have been more common in commercial lending than in consumer lending.

What is a balloon loan?

A balloon loan is a type of loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining balance of the loan. Balloon loans can be attractive to short-term borrowers because they typically carry lower interest rates than loans with longer terms.