Balloon Payment
Creative FinanceA balloon payment is the large lump sum of remaining principal that comes due at the end of a loan whose payments were calculated over a longer amortization than the loan’s actual term. They are common in seller-financed notes and commercial real estate — the monthly payments keep going for, say, five years, then the entire remaining balance is due all at once.
How it works. A seller carries a $200,000 note at 6% amortized over 30 years, making the monthly payment roughly $1,199. But the note only runs for five years — at year five, the remaining principal (about $186,000) is due as one balloon payment. The buyer must refinance, sell the property, or come up with the cash to satisfy the balloon when it lands.
| Line item | Amount |
|---|---|
| Note amount | $200,000 |
| Interest rate | 6% |
| Amortization | 30 years |
| Monthly payment | ~$1,199 |
| Actual term | 5 years |
| Balloon due at year 5 | ~$186,000 |
A balloon is the single biggest risk in a seller-financed deal. If you cannot refinance or sell before the balloon date — because rates rose, your credit changed, or the market softened — you lose the asset. Always have a refinance plan and negotiate for the longest balloon you can get, or no balloon at all.
For more on structuring terms, read 100% seller financing and the hybrid subject-to plus seller-finance article.