What Is a Balloon Payment?
In real estate financing, a balloon payment is the final, massive installment required to satisfy a balloon mortgage or a partially amortized promissory note. Unlike a standard 30-year loan where the final monthly payment is exactly the same as the first, a loan with a balloon feature leaves the vast majority of the principal balance unpaid until the very last day of the loan term.
Florida Statutory Requirements (Section 697.05)
Because balloon payments often catch unsophisticated borrowers by surprise (leading to devastating foreclosures), Florida law strictly regulates how they must be presented in lending documents.
Under Section 697.05, Florida Statutes, any mortgage creating a lien on Florida real estate that contains a balloon payment must include a specific, legally mandated legend printed clearly at the top of the first page of the mortgage and the promissory note. The required text must state:
"THIS IS A BALLOON MORTGAGE AND THE FINAL PRINCIPAL PAYMENT OR THE PRINCIPAL BALANCE DUE UPON MATURITY IS $[Amount], TOGETHER WITH ACCRUED INTEREST, IF ANY, AND ALL ADVANCEMENTS MADE BY THE MORTGAGEE UNDER THE TERMS OF THIS MORTGAGE."
If a private lender (such as a seller offering financing) fails to include this exact statutory language, a Florida judge could potentially refuse to enforce the balloon provision or penalize the lender, effectively forcing them to extend the loan term.
Strategies for Handling a Balloon Payment
Borrowers facing an impending balloon payment typically utilize one of three strategies:
- Refinance — The borrower applies for a new, traditional mortgage from a bank and uses those funds to pay off the balloon note.
- Sell the Property — The borrower sells the real estate and uses the proceeds from the closing to satisfy the balloon payment.
- Extension/Modification — The borrower negotiates with the lender to extend the maturity date, often in exchange for a higher interest rate or an upfront fee.
Related Terms
- Balloon Mortgage — The loan structure that necessitates the payment
- Promissory Note — The legal document containing the balloon payment obligation
- Amortization — The process of paying off a debt, which is interrupted by a balloon payment
Barnes Walker Seller Financing Drafting
Barnes Walker's attorneys draft ironclad seller financing documents, ensuring that balloon payments and promissory notes strictly comply with Florida's statutory disclosure requirements. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC