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Last Revised: January 12, 2023.
About this Form
A balloon note is a type of loan where the borrower is required to make regular payments, called interest-only payments, for a specified period. At the end of this term, the borrower must pay off the remaining balance of the loan, called the balloon payment, in one lump sum. This type of loan is flexible and can be used for various purposes such as business expansion, purchase of equipment, vehicles, or even personal loans. In addition, this type of loan is often used for real estate purchases, as it allows the borrower to make smaller payments during the loan's early years, when their cash flow may be limited. However, it also means that the borrower must be able to make a large payment at the end of the loan term or refinance the loan.
Who are the most common users of a balloon note loan?
Real estate buyers, business owners, equipment buyers, individuals, farmers, car buyers, small business owners, developers, patients, and homeowners.
What are the advantages of using a balloon note loan?
✔ Lower Monthly Payments: Because a balloon note only requires interest-only payments during the loan's early years, the borrower's monthly payments will be lower.
✔ Cash Flow Flexibility: A balloon note allows borrowers to have more control over their cash flow during the loan's early years.
✔ Lower Interest Rates: Because the borrower is taking on more risk by agreeing to a larger balloon payment at the end of the loan term, the lender may offer a lower interest rate.
✔ Larger Loans: Because of the lower monthly payments, borrowers may qualify for larger loans than they would with a traditional loan.
✔ Tax Savings: Interest paid on a balloon note may be tax-deductible for certain types of loans, such as those for business or investment purposes.
✔ Asset Appreciation: A borrower may use a balloon note to purchase an asset that is expected to appreciate, such as real estate, and then sell it for a profit when the balloon payment is due.
✔ Refinancing Potential: If the borrower cannot make the balloon payment at the end of the loan term, they may be able to refinance the loan.
✔ Early Payoff Savings: Borrowers can save on interest by paying off the balloon note before the end of the loan term.
✔ Longer Amortization: Balloon notes can have more extended amortization periods than traditional loans, which spread out the payments over a more extended period.
✔ Higher Loan-to-Value Ratio: Since the loan is amortized over a longer period, lenders may have flexibility in lending a higher percentage of the value of the collateral.
BALLOON NOTE
FOR VALUE RECEIVED, the undersigned promise to pay to the order of ______________________________ the sum of _______________________________ dollars ($__________), with annual interest of _________% on any unpaid balance.
This note shall be paid in ________ consecutive and equal installments of $__________ each with a first payment one _______ [insert time interval, such as "month"] from the date hereof, and the same amount on the same day of each _______ [insert time interval, such as "month"] thereafter, provided the entire principal balance and any accrued but unpaid interest shall be fully paid on or before ________________, 20_____. This note may be prepaid without penalty. All payments shall be first applied to interest and the balance to principal.
This note shall be due and payable upon demand of any holder hereof should the undersigned default in any payment beyond _____ days of its due date. All parties to this note waive presentment, demand and protest, and all notices thereto. In the event of default, the undersigned agree to pay all costs of collection and reasonable attorney's fees. The undersigned shall be jointly and severally liable under this note.
Signed this _____ day of _______________, 20_____.
Signed in the presence of:
______________________________
Maker Signature
______________________________
Maker Full Name
______________________________
Witness Signature
______________________________
Witness Full Name
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