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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.
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The loan balance remaining at the time the loan contract calls for full repayment.
The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.