Glossary
Balloon payment
A large lump sum due at the end of a loan term, after years of smaller payments that didn't fully pay off the balance.
A balloon loan is structured with monthly payments sized as if the loan amortized over a longer period (say, 30 years), but the entire remaining balance comes due after a much shorter term (often 5–7 years) in one final "balloon" payment. It keeps regular payments low but requires a plan for the balloon — usually refinancing, selling the asset, or having cash ready. Missing the balloon payment without a backup plan is the single biggest risk of this loan structure.
Related terms
- Lien A legal claim against property that secures a debt — the lienholder can force a sale to collect if the debt goes unpaid.
- Loan-to-value ratio The loan amount divided by the property's value, expressed as a percentage — a core number in mortgage and home-equity underwriting.
- Credit score A 300–850 number summarizing your credit risk. It is the single biggest lever on the rate a lender offers you.
- Prepayment penalty A fee some lenders charge for paying a loan off early. Rare on consumer loans, common in commercial lending — always check the note.
- Amortization The schedule that splits each payment between interest and principal. Early payments are mostly interest; the balance flips near the end of the term.
- Origination fee An upfront charge (0–8% of the loan) deducted before funds reach you. A $10,000 loan with a 5% fee delivers $9,500 — but you repay all $10,000.