Balloon Principal Repayments

Definition

A large lump-sum payment of remaining principal due at the end of a loan whose earlier payments did not fully pay it down, usually requiring a sale or refinancing to meet. For residential mortgages, a loan generally cannot be a qualified mortgage if it has a balloon payment, defined as a scheduled payment more than twice the average of earlier payments, subject to a regulatory exception for certain small creditors^[1], and high-cost mortgages may not contain one^[2].

Federal law

A market and contract term. No Act of Congress defines it; the federal laws below apply as described.

1. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, § 1412, 124 Stat. 2145 (Truth in Lending Act § 129C(b), 15 U.S.C. § 1639c(b)). Excludes loans with balloon payments from the qualified mortgage definition, with an authorized exception for balloon loans by certain small portfolio creditors (15 U.S.C. § 1639c(b)(2)). Official text: govinfo.gov, U.S. Government Publishing Office.
2. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, § 1432, 124 Stat. 2160 (Truth in Lending Act § 129(e), 15 U.S.C. § 1639(e)). Prohibits balloon payments in high-cost mortgages (15 U.S.C. § 1639(e)). Official text: govinfo.gov, U.S. Government Publishing Office.