A type of variable rate involving a renewable short-term "balloon" note. The interest rate on the loan is generally fixed during the term of the note, but when the balloon comes due, the lender may refinance it at a higher rate. In order for the loan to be fully amortized, periodic refinancing may be necessary.
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An adjustable interest rate in a balloon loan. The renegotiable rate is constant throughout the life of the balloon loan, but, when the loan comes due, the lender has the right to refinance the loan at a higher interest rate. This is advantageous for both the borrower and the lender, as the borrower does not have to pay the entire principal when the loan comes due, and the lender may take advantage of the higher payments.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved