Other loans (conventional or government backed loans) are paid incrementally over the life (term) of the loan so that by the end of that time, the total cost (interest and principal) has been paid off. Whereas a balloon loan’s principal is paid in one sum at the end of the term, which is usually 5 or 7 years. That sum is called the balloon payment. Borrowers can refinance at the end of the term or pay the balloon payment.
What is a balloon loan?