What is balloon payment? - Posted by Pak

Posted by Ben on December 22, 1999 at 14:18:31:


What is balloon payment? - Posted by Pak

Posted by Pak on December 21, 1999 at 22:32:35:

Hi experts

Can someone tell me what’s the meaning of the word “balloon”? I found it in many of realestate articles. And what does “equity” in realestate term mean?

Thank you

Balloons and Bubbles and a circus - Posted by John Behle

Posted by John Behle on December 24, 1999 at 24:28:03:

Some use the term “balloon” payment to refer to any lump sum greater than the normal installment. So you can find the term used for other than the final payment.

A more appropriate term for lump sum installments (that are not the full amount due and owing) that exchangors use is “bubble” as in small balloon.

Someone with a portfolio that has many balloons can be referred to as a “circus”. Kind of like negative cash flows. One negative cash flow property is called an alligator. A small negative can be referred to as a lizard. A bunch of properties with negative cash flows is called a “swamp”.

I’ve had some properties in the past that could more accurately be described as “Godzilla’s”. In particular the “Triplex from Hell” that cemented my inclinations towards paper investment - - over properties, tenants and toilets.

Lets be pedantic… - Posted by Michael Morrongiello American Note

Posted by Michael Morrongiello American Note on December 22, 1999 at 14:45:31:

Jim,has a good explanation, here is more food for thought:

  1. A balloon payment is the final payment on a loan. However the final payment on the loan (note) is comprised of the outstanding amount of principal that is due plus any accrued interest until the date of maturity, pluse any per diem interest thereafter.

  2. Always try to negotiate a “safety valve” into your deals where a balloon payment is involved and IF you are the one to make the payments on a balloon in the future. eg. “upon increasing hte rate from 9% to 10% seller agrees to extend maturity date for 3 years,…”

  3. If you the one to collect on a balloon. Try to make sure that “a default interest rate” kicks in IF the maturity date is not met by the payor. eg. “if the note is not paid in full upon maturity, a default interest rate shall be in effect based upon the highest legal rate allowable…”,etc.

Michael Morrongiello
Operations Manager

When you buy a balloon at a carnival and you have to come back later to pay for it… - Posted by Bill Gatten

Posted by Bill Gatten on December 22, 1999 at 12:25:54:

Just kidding. Just needed a break from the “heavy” stuff.

Jim LeVerdi’s answer to your question is well thought out, and is one you want.


Re: What is balloon payment? - Posted by Jim LaVerdi

Posted by Jim LaVerdi on December 21, 1999 at 22:44:38:

A Balloon Payment is: the final payment on a loan, when that payment is greater than the preceding installment payments and pays the loan in full.

EXAMPLE: A debt requires interest only payments annually for 5 years, at the end of which time the principal balance (The Balloon Payment) is due.

Equity is : The interest or value that the owner has in real estate over and above the LIENS against it.
EXAMPLE: A property has a MARKET VALUE of $100,000. The owner currently owes $60,000 in mortgage loans that are against the property. The owners equity is $40,000. The total value minus any debt equals EQUITY.