A note calling for periodic payments which are insufficient to fully amortize the loan, so that a principal sum known as a balloon is due at maturity.
A balloon note is a loan arrangement in which the borrower makes regular monthly payments—often based on a longer amortization period—but the loan does not fully amortize by the end of its term. Instead, a large lump-sum payment, known as the balloon payment, becomes due at a specified date, typically after five to seven years. This final payment covers the remaining principal balance of the loan. Balloon notes are sometimes used to offer lower initial payments or interest rates, with the expectation that the borrower will refinance, sell the property, or otherwise pay off the balance before the balloon payment comes due.
