Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.
Balloon Loan
A balloon loan schedules low periodic payments for a set term, then requires one large final payment (the balloon) to retire the remaining principal balance.
Exam context
Questions describe a note with 10 years of interest-only payments and a balance due at year 10. Identify the instrument as a balloon loan and recognize that the final payment is principal-heavy compared with prior installments.
Why borrowers choose balloon structures
Developers and investors may accept a balloon when they expect to sell or refinance before the final payment date. Monthly carrying costs stay lower than fully amortizing loans because little or no principal is paid down during the term.
Default risk at maturity
If the borrower cannot refinance or sell before the balloon date, they must pay the lump sum from cash reserves or face default. Lenders often underwrite the exit strategy explicitly. Exams contrast balloon notes with fully amortizing fixed-rate mortgages.
Examples
Commercial acquisition
A buyer obtains a five-year balloon loan on a retail strip with monthly interest-only payments and a balloon equal to the original principal at month 60.
Partial amortization
A 30-year amortization schedule compressed into seven years leaves a large balloon when the note matures before the balance reaches zero.
Keep studying
Related terms
- AmortizationScheduled principal reduction over the life of a loan.
- Bridge loanShort-term financing often repaid when permanent financing closes.
Related resources
- Free exam prep
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- Real estate glossary hub
Browse all published national glossary entries.
- Florida exam topic hub
Florida-specific explainers and question sets for this topic area.
Sources
- CFPB: balloon payments(Consumer Financial Protection Bureau)