Ballon payment - Posted by TA

import · March 14, 2002, 1:52pm

Posted by TA on March 14, 2002 at 15:00:06:

Opps!!! Balloon payment or Balloon

import · March 14, 2002, 1:52pm

Posted by TA on March 14, 2002 at 14:52:49:

Hi Everyone,

Could someone explain to me what a Ballon payment is,as it pertains to a note or mortgage? If you could also provide an example it would be very helpful to this Newbie!!!

Thanks,
TA

import · March 14, 2002, 2:37pm

Re: Ballon payment - Posted by Dave T

Posted by Dave T on March 14, 2002 at 15:37:58:

The term is used to describe an installment payment that is greater than twice the amount of the smallest installment payment on a note.

A typical example is often found in owner financing situations. A seller may agree to carry financing for the buyer to facilitate the sale of the seller’s property. The terms may be stated as a mortgage note for $XXXXX, at Y% interest, amortized for 30 years with remaining balance due and payable at the end of five years.

Now if the note term ran for a full 30 years, the borrower could make 360 equal payments to pay off the note. In this instance, with a 30 year amortization, the loan balance remaining after the 59th payment is the amount due as the 60th payment (plus interest).

This 60th payment is called a balloon payment because it is greater than twice the amount of any previously scheduled payment. In this case, the balloon payment also pays off the loan.