What’s A Balloon Note?

A balloon note merely means that at the end of the loan term, some or all of the original loan amount is due and payable. This sounds harmless until borrowers realize how much may be due.

For example. You have a $50,000 loan at 8 percent interest. You make principal and interest payments on the schedule that would pay off the loan in 30 years. But, this is a five-year balloon note. At the end of five years you would owe $47,535.

Be aware that balloon notes are a wonderful way to go bankrupt or to be foreclosed if the amount due cannot be paid by savings, refinancing, selling, etc.

Because of the financial dangers they represent, short-term balloon notes — say those less than five to 10 years in length — should be avoided.

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Posted in: Mortgages

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