A loan that is paid back in a single lump sum payment at the due date of the loan is commonly called a balloon loan.
Loans that do not completely amortize throughout their terms are known as balloon loans. A balloon payment is necessary to pay off the loan's remaining principal balance because it hasn't been fully amortized by the time the term is up.
Because they often have lower interest rates than loans with longer maturities, balloon loans might be alluring to short-term borrowers. There is a chance that the loan could reset at a higher interest rate, therefore the borrower must be mindful of refinancing risks.
The loans with balloon payments are mortgages the most frequently. Usually, between five and seven years long, balloon mortgages have short periods.
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