how does a balloon payment work 
a balloon payment works like any other loan installment payment the difference is that it is the final payment on the loan and is substantially higher than the previous payments a typical balloon loan requires only interest to be paid each month until the final month of the loan term in the final month the entire principal balance is due the interest paid each month is typically a fixed amount as the principal balance does not change and the interest charged each month is not capitalized as part of the loan but instead paid off immediately 