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 ?
At the same time, the balloon loan's longer amortization (usually 30 years) provides the borrower with lower monthly payments than short-term loans, such as a 15-year mortgage.
Both Busby and Barnes say they are perplexed by the Consumer Financial Protection Bureau's targeting of balloon loans as part of a consumer protection strategy.
This system of so-called "Balloon loans", also operated by Marks and Spencer Financial Services and Alliance & Leicester, gets drivers into more expensive cars than they could otherwise afford.
This system of so-called 'Balloon loans', also operated by Marks & Spencer Financial Services and Alliance & Leicester, gets drivers into more expensive cars than they could otherwise afford.
(6) Respondents also failed to identify a source of repayment for the loans despite the obvious risk that such action entailed in the case of these large balloon loans made to borrowers whose cash flow did not appear sufficient to repay principal.
These products are similar to balloon loans in that their purpose is to finance a car (rather than leasing for use) and the lessee has a very strong economic incentive to buy the car.
In Mississippi, bankers are meeting with congressional representatives on a proposal to grant qualified status to non-traditional mortgages such as balloon loans that are kept on the lending bank's books for the duration of the loan.
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.
That's because beginning next month the first of the 2007 five-year balloon loans will come due.
While most creditors believe low monthly payments with balloon payments can sometimes be useful credit arrangements and should be permitted, the current less-than-five-year rule can still be criticized because it allows creditors to flip mortgages with balloon loans that mature in five years.
Weak Pool Amortization: There are 19 loans (36.2% of the pool) that are partial interest-only, 17 loans are full interest-only (50.9%), and eight loans (12.9%) are amortizing balloon loans. Based on the scheduled balance at maturity, the pool will pay down by 5.8%, which is below the YTD 2018 and 2017 averages of 7.3% and 7.9%, respectively.
Also, the loan cannot include risky features--especially balloon loans.