Final answer:
A balloon payment is a large one-time payment that is often the final payment to discharge a debt, usually at the end of a loan's term, after a series of smaller payments have been made. This differs from a down payment, which is made at the beginning of a loan agreement. Balloon payments are risky and require careful financial planning.
Step-by-step explanation:
The term describing a larger than usual one-time payment on a loan, often a mortgage, that is typically the final one for discharging the debt is known as a balloon payment. This form of payment structure is unlike a down payment, which is an initial payment made when buying something on credit, typically a percentage of the purchase price. The balloon payment is a large payment due at the end of the loan term after a series of smaller regular payments. A common scenario for balloon payments is with short-term home loans or when a borrower anticipates a significant financial inflow at a future date that will cover the lump sum.An example of a balloon payment would be if you borrowed $100,000 with the agreement that you would make small interest-only payments for 5 years, after which the remaining principal balance (the balloon payment) would be due. Should you be unable to make this payment, you might have to refinance the loan or face foreclosure if it's a mortgage loan.The idea behind this payment structure is often to take advantage of expected future financial positions, allowing lower payments in the short term. But it comes with risks, as a person's financial situation could change unexpectedly, making the large balloon payment unaffordable when it becomes due.