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What is a ballon payment? Kiritsis Law Group 212 922 0005

May 13, 2021

By: John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

Generally, it is the final installment payment on a loan, and it is a lot bigger than the other installment payments. Balloon payments can be found in many types of mortgage financing; however, they are more commonly found with commercial real estate mortgages than with residential real estate mortgages. In a good economy with a healthy real estate market, and borrow making timely payments: balloon payments should be of little concern to the buyer/borrower. At the end of the period, when the balloon payment is due, the same or a different lender will provide refinancing. However, oftentimes in life, when things go bad they sometimes go very bad. If the economy is in bad shape, it will be harder to obtain a re- financing loan. To make matters worst, if the economy is not doing well, then the property’s market value may have dipped, thus reducing the potential amount that you can borrow. Compounding the problem, is that banks may be experiencing a cash crunch and be more forcible in demanding the balloon payment. If your mortgage loan has a balloon payment, you should monitor the date that is coming due, and should have arranged for alternative financing, prior to the due date. If getting a mortgage refinance is out of the question, they try to be proactive by talking to the lender before you miss a payment.

 

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