Balloon Payment Mortgage

A balloon payment mortgage does not fully pay off over its term, leaving a large final payment due on a set date. Short-term BRRRR financing, from hard money to seller notes, is usually structured this way, with the cash-out refinance planned as the source of the balloon.

The risk is timing. A hard money loan might run six to twelve months, and the refinance depends on the rehab being done, the property rented and the appraisal coming in. A contractor delay or a slow lease-up can push the refinance past the due date.

Many short-term lenders offer extensions for a fee, and some charge default interest if the loan runs past maturity. Picking a term longer than the rehab schedule, and knowing the extension terms before closing, protects the deal when the timeline slips.

Further reading: Balloon Payment Mortgage on Wikipedia.