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Simple English definitions for legal terms
balloon note
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A quick definition of balloon note:
A balloon note is a type of promise to pay money. It requires small payments over time, but then a very large final payment at the end. The small payments usually only cover the interest, while the final payment is for the entire amount borrowed. It's like blowing up a balloon slowly, and then having to pop it all at once at the end.A more thorough explanation:
A balloon note is a type of promissory note that requires small periodic payments but a very large final payment. The periodic payments usually cover only interest, while the final payment (the balloon payment) represents the entire principal.
For example, let's say you borrow $10,000 with a balloon note that requires monthly payments of $100 for five years. At the end of the five years, you would owe a final payment of $9,500 to pay off the remaining principal.
Balloon notes are often used in real estate transactions, where the borrower makes small monthly payments and then pays off the remaining balance with a large final payment when the property is sold or refinanced.