Balloon payment: Difference between revisions
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The phrase ''balloon payment'' refers to one of two ways for repaying a loan; the other type is called ''amortizing payment'' or ''amortization''. |
The phrase ''balloon payment'' refers to one of two ways for repaying a loan; the other type is called ''amortizing payment'' or ''amortization''. |
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Revision as of 22:12, 1 December 2006
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The phrase balloon payment refers to one of two ways for repaying a loan; the other type is called amortizing payment or amortization.
With a balloon loan, a balloon payment is paid back when the loan comes to its contractual maturity, e.g. reaches the deadline set to repayment at the time the loan was granted, representing the full loan amount (also called principal).
In contrast, with amortization, portions of the principal are periodically being repaid (along with the loan's interest payments) until the loan matures. With full amortization, the amortization schedule has been set so that the last periodical payment comprises the final portion of principal still due. With partial amortization, a balloon payment will still be required at maturity, covering the part of the loan amount still outstanding.