Balloon Loans

A balloon payment mortgage is a mortgage which does not fully amortize over the term of the loan, thus leaving a balance due at maturity. This balance due is included in the final payment and is called a balloon payment because of its large size. In some cases borrowers may not have the resources to make the balloon payment at the end of the loan term. Lenders sometimes offer "two step" mortgages or mortgage plans with "reset options". In these, the balloon mortgage "resets" at maturity using current market rates and a fully amortized payment schedule.

Typically the expectation with balloon loans is that the borrower will either refinance the loan or sell the property prior to the final balloon payment.