How a balloon loan is structured
| Feature | Balloon loan | Standard 30-year fixed |
|---|---|---|
| Payment based on | Long schedule (e.g. 30 years) | 30 years |
| Loan actually lasts | 3 to 10 years | 30 years |
| Final payment | Large lump sum | Last regular payment |
| Main risk | Not able to refinance | None at maturity |
The low monthly payment comes from spreading repayment over a long schedule, but the lump sum arrives early. If you expect to sell, pay from a known source, or refinance on solid footing, a balloon loan can work. Otherwise a fixed-rate loan is safer. See the ARM vs fixed calculator to compare other structures.