Consumer Comeback Blog

Credit Score Glossary: Balloon Payment

Balloon Payment: A large sum of money due as payment at the end of a mortgage or loan.

This amount serves as the final payment of the mortgage or loan and is significantly more than the monthly payments. Balloon payments are most commonly used in mortgages, in which a person usually plans on refinancing the mortgage at maturity or selling the home to avoid having to pay the large amount. With loans, a borrower might have a balloon payment if less money was put down on the loan or the borrower had a lower fixed interest rate, which would make for lower monthly payments. Balloon payments can prove risky for first-time borrowers, and it’s best to set aside enough money to make the massive payment when the time arrives.