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What is a Balloon Payment?
A balloon payment is a lump sum due at the end of a balloon loan term.
In a balloon loan arrangement, the payment schedule does not amortize the entire amount of the loan, but instead allows for lower installment payments by holding a lump-sum payment until the end of the term.
These terms are usually relatively short, such as 5 years, and often these arrangements are taken by individuals or consumers who plan on refinancing before the balloon payment comes due.
Some balloon loans contain a reset provision that allows the borrower to automatically be approved for a new financing arrangement instead of paying the balloon payment when the initial term in over.
The interest rate on the new financing arrangement is determined at the time of the reset. Some balloon loans do not have a reset provision. These tend to look like a coupon bond where the borrower is a bond issuer and the principal is repaid at the end of the term.
Some businesses or individuals might find this agreeable, such as contractors or commercial real estate developers who are paid lump sums as much as a few years after a project begins. For others, this can be a precarious situation — balloon payments can be significant sums of money, and some borrowers could find it impossible to pay such an amount when it’s due, despite their best intentions.
How is a 403(b) Different From a 401(k)?
A 403(b) is extremely similar to a 401(k); the main difference is the type of employer than can offer each
When Do I Have to Withdraw Money from My Roth IRA?
Roth IRAs are not subject to RMDs, which means you aren’t forced to make withdrawals
When Can I Access the Money in my IRA?
You have the ability to make withdrawals from an IRA leading up to retirement, but you may be penalized
What is Variable Universal Life Insurance?
Variable Universal Life Insurance benefits the very wealthy, since there is no cap on contributions or income for eligibility
What are Asset-Backed Securities?
The assets within the ABS generally tend to consist of different kinds of debt receivables, such as credit cards, auto loans, home equity loans, and so forth.
What is a Spin-off?
A spin-off is when a division or subsidiary of a company is separated from the parent corporation and starts its own
What is Form 1040-X?
Form 1040-X is the amendment form used to change previously submitted information from the 1040, 1040-A, or 1040-EZ tax filing form.
What is the Falling Pennant (Bearish) Pattern?
The Falling Pennant (or Bearish Pennant) pattern looks like a pennant turned upside down (the mast points up)
Can I Get Exposure to Virtual Currency Through ETFs, Mutual funds, or Stocks?
Money managers are finding ways to offer managed investments that offer exposure to cryptocurrencies, despite the hurdles presented by regulators
What is Face Value?
Face Value is the nominal value of a security or currency as written/stated by the issuer. It may vary from market price