Balloon Payments

A balloon payment is sometimes placed into a contract for deed or a traditional financing mortgage. Balloon payments are not preferred because it tends to be a large chunk of cash that the buyer / investor would rather not spend.

Balloon payments are common for people with bad credit. It gives the borrower time to gain some equity before a large cash amount is due.

If you do have a balloon payment in your contract it is recommended that it not be due until after 5 years. This amount of time will allow the property to appreciate in value so the buyer can refinance into a manageable mortgage note when the balloon is due.

You will also see balloon payments in the lease with option. Although it is more commonly called an "option" it is basically a large amount due at a specified date. If you decide to exercise the option you will have to make that balloon payment so you can remain the owner of that property.

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