Balloon payment
A large lump-sum payment due at the end of a loan that was structured with low payments over a short term, leaving most of the principal unpaid.
What does balloon payment mean?
A balloon loan keeps monthly payments low by amortizing over a long schedule — say 30 years — while the full remaining balance falls due after a short term such as five or seven years. That single lump sum, the balloon, dwarfs any regular payment. Borrowers typically plan to refinance, sell, or pay it off before it lands, so a balloon is really a bet on future cash or credit.
Frequently asked
How is a balloon payment calculated?
The loan is amortized over a long schedule — often 30 years — so payments stay low, but the term ends early, say in five or seven years.
The balloon is whatever principal is still owed at that point, which on a 30-year amortization is most of the original balance.
What happens if you cannot make the balloon payment?
You generally must refinance into a new loan, sell the property, or risk default and foreclosure.
Because the lump sum is so large, borrowers plan the exit in advance — and counting on being able to refinance later is the main risk of a balloon loan.
Put it to use
Balloon Mortgage Calculator
Keep payments low with a long amortization, then see the lump-sum balloon due at the short term end.
Amortization Calculator
Generate a complete amortization schedule for any fixed-rate loan, every payment split into principal and interest.
Mortgage Refinance Calculator
Compare your current loan to a refinance: new payment, closing costs and the break-even point.
Related terms
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