Final answer:
A balloon loan may need to be refinanced if the borrower has a history of late payments, if interest rates have risen since the loan was taken, or if current economic conditions make the loan terms less suitable.
Step-by-step explanation:
A balloon loan may need to be refinanced under several circumstances. If a borrower has a history of late payments, they appear less likely to repay the loan timely, making refinancing a possibility to prevent default.
Additionally, if interest rates have risen since the loan was issued, the existing lower-interest loan becomes less attractive, and refinancing might be necessary to adjust to the current market rates.
A firm with a high profit record, however, might be more likely to repay, possibly making refinancing less essential unless it seeks better terms due to fallen interest rates in the economy, which can make a loan more valuable and advantageous to refinance for different financial strategies.