What is the final payment called when a borrower must pay a residual balance at the end of a loan term?

The final payment made by a borrower to settle a loan that has a residual balance at the end of its term is referred to as a balloon payment. This term is used to describe a situation where the regular payments made during the loan term do not fully amortize the loan, meaning that at the end of the term, a larger final payment is due. This payment can be significantly more substantial than the earlier payments, since it covers the remaining principal balance that was not paid down over the loan's duration.

In the context of loans, particularly in real estate financing, balloon payments are often encountered in short-term loans or loans that have a specific structure designed to allow for lower monthly payments initially. The lump sum payment at the end can be a result of a variety of loan arrangements, including fixed-rate or adjustable-rate mortgages where the terms lead to a large final payment rather than a series of smaller, steady payments throughout the entire loan period.

This concept is distinct from the other options listed. For instance, an amortized payment refers to those that are structured to fully pay off the loan balance over time, eliminating the need for a large final payment. A final settlement usually refers to the conclusion of all financial obligations but does not specifically highlight the feature of a