Legal Definitions - balloon note

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.