Balloon Payment Defintion
A balloon payment in real estate refers to a larger than usual lump sum payment that is due at the end of a loan term, typically after several years of smaller payments. This type of payment is commonly used in commercial real estate loans, and can be a significant financial obligation for the borrower.
Balloon Payment Example
An example of a real estate balloon payment would be a commercial real estate loan with a 10-year term and a balloon payment due at the end of the term. Let’s say a borrower takes out a $1 million loan at a fixed interest rate of 5%, with monthly payments of $10,659 over the 10-year term. At the end of the 10 years, the borrower would owe a balloon payment of $823,224, which represents the remaining principal balance of the loan. The borrower would need to either pay off the balloon payment in full or refinance the loan to avoid defaulting on the payment.
Balloon Payment Synonyms
- Bullet payments
- Lump sum payments
- Final payments
- End payments
- Maturity payments