Balloon Payment Mortgage Law and Legal Definition

Balloon Payment Mortgage is a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract. A balloon payment mortgage may have a fixed or a floating interest rate and does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size. Balloon payment mortgages are commonly used in commercial real estate than in residential real estate.