Acronyms that contain the term balloon payment 

balloon payment

A balloon payment mortgage is a mortgage which 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 more common in commercial real estate than in residential real estate. A balloon payment mortgage may have a fixed or a floating interest rate. The most common way of describing a balloon loan uses the terminology X due in Y, where X is the number of years over which the loan is amortized, and Y is the year in which the principal balance is due.An example of a balloon payment mortgage is the seven-year Fannie Mae Balloon, which features monthly payments based on a thirty-year amortization. In the United States, the amount of the balloon payment must be stated in the contract if Truth-in-Lending provisions apply to the loan. Most commonly, term lengths are five or seven years.Because borrowers may not have the resources to make the balloon payment at the end of the loan term, a "two-step" mortgage plan may be used with balloon payment mortgages. Under the two-step plan, sometimes referred to as "reset option," the mortgage note "resets" using current market rates and using a fully amortizing payment schedule. That option is not necessarily automatic and may be available only if the borrower is still the owner/occupant, has no thirty-day late payments in the preceding twelve months, and has no other liens against the property. For balloon payment mortgages without a reset option or if the reset option is not available, the expectation is that either the borrower will have sold the property or refinanced the loan by the end of the loan term. That may mean that there is a refinancing risk. Adjustable rate mortgages are sometimes confused with balloon payment mortgages. The distinction is that a balloon payment may require refinancing or repayment at the end of the period; some adjustable rate mortgages do not need to be refinanced, and the interest rate is automatically adjusted at the end of the applicable period. Some countries do not allow balloon payment mortgages for residential housing: the lender then must continue the loan (the reset option is required). For the borrower, therefore, there is no risk that the lender will refuse to refinance or continue the loan. A related piece of jargon is bullet payment. With a bullet loan, a bullet payment is paid back when the loan comes to its contractual maturity (for example, when it reaches the deadline set to repayment at the time the loan was granted), representing the full loan amount (also called principal). Periodic interest payments are generally made throughout the life of the loan.

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