Balloon Loan


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Balloon Loan

A loan or bond in which the borrower makes only interest payments for a set period of time. At the end of the term, the borrower repays the entire principal at once. A balloon loan may be useful when the borrower expects interest rates to be low at the end of the term, allowing him/her simply to refinance the loan. However, there is a high risk of default because not all borrowers actually have the cash to repay an entire loan in one payment. See also: Balloon Mortgage.
References in periodicals archive ?
Whereas the ARM loan's fluctuation in interest rate and payments means more instability for the borrower, the conforming balloon loan is fixed rate.
Key features of the AFG Driving Sense balloon loan program include:
At the end of seven years, borrowers have the right to refinance their maturing Fannie Mae balloon loans into a 23-year, fixed-rate mortgages at the prevailing mortgage rate.
We have been using the AFG Driving Sense balloon loan program for the last two years," said Gary Roback, Vice President of Member Services at GPO FCU.
The CREL delinquency index includes loans and assets that are currently 60 days or longer delinquent, matured balloon loans, and the current month's repurchased assets.
This includes the defeased loan, fully amortizing loans, and balloon loans.
Current loan terms for Freddie Mac's SBL offering include a hybrid ARM with initial 5-, 7-, or 10-year fixed-rate periods or 5-, 7-, or 10year fixed-rate balloon loans, all with up to a 30-year amortization.
Among them, leases and balloon loans, which advocates say can bring in higher yields than traditional financing and potentially offer more savings for members on their monthly payments.
7 billion in 2006-vintage five-year balloon loans reaching maturity.
This option is meant to preserve access to credit for consumers located in rural or underserved areas where banks originate balloon loans to hedge against interest rate risk for loans held in portfolio," the Federal Reserve said in a press release.
Balloon loans provide the borrower with a lower monthly payment and the ability to obtain a lower interest rate for the principal amount before completion of the loan period.
But unlike personal loans, balloon loans leave that lump sum outstanding when a planned repayment period ends ( which drivers must eventually pay off if they are not to lose the vehicle.