Direct answer
What does Balloon payment mean?
A final payment that is substantially larger than the preceding scheduled payments.
Exam cue: A balloon often appears when the payment schedule does not fully amortize the debt by maturity.
What does it look like in a question?
New York example
A five-year loan uses payments based on a longer amortization period, leaving a large balance due in year five.
Common exam trap
What should you not confuse it with?
A balloon payment is not the same as every final regular payment.
Related real estate finance terms
AmortizationRepayment of debt through scheduled payments that reduce principal over time.Debt serviceThe scheduled principal and interest payments required on debt for a stated period.EquityThe owner's value in property after subtracting liens from the property's value for the calculation being used.ForeclosureThe legal process used to enforce a mortgage lien after default and subject the property to sale or another court-ordered remedy.Loan-to-value ratioThe loan amount expressed as a percentage of the applicable property value or price.MortgageA security instrument that creates a lien on real property to secure repayment of a debt.
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