Balloon Payment

A balloon payment is a loan payment outside of the normal regular payment schedule, and is normally a larger amount than the normal payments.

For interest only loans, there will be a balloon payment at the end of the loan term of the full borrowed amount, plus any accrued interest.

Example: An interest only loan of $300,000 was taken out. The borrower's monthly payment would only cover the accrued interest for the month, so at the end of the loan term, the $300,000 is still outstanding. They will be required to repay the loan with a $300,000 balloon payment.