If you have agreed to sell a property you own and you will carry the note, should you agree to a balloon payment due you in 3-5-7 years? Maybe, maybe not.
There are no industry wide statistics that tell us whether balloon payments are in fact paid when they are due. In conversations with various note buyers, the results are mixed. Some have almost all their balloons pay off, some have almost none of them pay off, and some of us experience a combination. If a person could not obtain a bank loan, the odds may be high that he will not be able to refinance and pay off your balloon when it is due. Rather than foreclose, you will probably eliminate the balloon and extend the note.
Bottom line, you better know your buyer’s financial and credit situation before you agree to terms that include a balloon payment. If you have doubts, agree to a full amortization and forego the balloon.