A note with a balloon has two parts: the monthly payments and the large final payment. You can sell one part and keep the other. Selling the later part, whether that is the balloon or the last years of payments, is called a back-end partial.
A standard partial, the kind the partial purchases guide is built around, sells the near payments and keeps the far ones. The structures on this page let you choose which end to let go of, and the choice turns on whether you want income now or a lump sum later, and on how sure anyone can be that the balloon will be paid.
What a balloon note is made of
A balloon is a single large payment that clears the remaining balance on a set date, before regular payments alone would have paid the note off. A note might be calculated as if it ran for thirty years, with the whole remaining balance due at the end of year seven.
That gives a buyer separate things to price. The monthly payments are small, regular and close. The balloon is large, single and distant, and it depends on the payer finding the money, which in practice means refinancing or selling the property. That dependence is the main way a balloon payment changes a note’s value.
Selling the payments and keeping the balloon
This is a straight partial on a balloon note. The buyer purchases the monthly payments up to the balloon date, or some of them, and the balloon stays yours. You get cash now for the part of the note that is easiest to price, and the largest single payment on the note is still coming to you. In exchange you give up your monthly income until the partial ends.
You also carry all of the balloon risk. If the payer cannot pay it when it falls due, that problem is yours to solve, and the buyer has no part in it. The structure suits a holder who needs a modest sum now, believes the payer will be able to refinance, and is content to wait.
Selling the balloon and keeping the payments
Here the buyer pays you today for the right to receive the balloon when it comes due, and you keep collecting the monthly payments in the meantime. Your income is not interrupted. What you part with is the largest sum the note will ever pay you.
The price reflects what the buyer is taking on. They wait years for a single payment that might arrive late or need renegotiating, and they discount it for the wait and again for the doubt, so expect an offer a long way below the balloon amount. This version suits a holder who lives on the monthly payment, does not want to be the one chasing a balloon in a few years, and accepts a steep discount in exchange.
How buyers judge a balloon
A buyer looking at a balloon is asking whether this payer will be able to pay it. The answer rests on things you can check before asking for a quote.
- Equity. The more the property is worth compared with what is owed, the easier a refinance is.
- Payment record. A long run of on-time payments helps the payer qualify for a new loan.
- Time left. A balloon due soon is discounted for less time, but leaves the payer less room to prepare.
- Property type. A house in a market with plenty of lenders is easier to refinance than raw land or an unusual building.
Each of these moves the price in the direction you would expect, though none comes with a rule of thumb we would put a number on.
Back-end partials on a note with no balloon
The same idea works on a fully amortized note, which is one that pays itself off through regular payments with no balloon. You keep the next several years of payments and sell the ones after that.
The numbers show why holders seldom choose it. The note in this example pays $1,140 a month, with 168 payments left and about $129,400 owed, and it is priced at an 8% yield.
| What you sell | Payments add up to | Cash today |
|---|---|---|
| The first 84 payments | $95,760 | $73,100 |
| The last 84 payments | $95,760 | $41,900 |
Illustrative example. The last-84 figure is the full-sale price of $115,000 less the $73,100 price of the first 84, which is what the same 8% yield gives. A buyer is likely to want a higher yield for payments that do not start for seven years, which would lower it.
The same dollars of payments raise far less when they sit at the back, which runs against the reason for doing a partial at all. Consider a back-end partial only when keeping your current income matters more to you than the price.
What the agreement has to cover
Balloon and back-end structures raise questions that a plain partial does not, and each needs an answer in writing.
Start with a missed balloon. If the payer cannot pay on the due date, who decides whether to extend, modify or enforce? Where the balloon belongs to the buyer and you still hold the monthly payments, your interests may not match. If the date is pushed back, the agreement should also say who receives the extra monthly payments in between.
Early payoff cuts the other way. A payer who refinances years ahead of schedule hands the buyer of a balloon their money sooner than they priced for, so the agreement should state how the payoff is divided and show it with numbers.
Then there is the question of who holds what. In a back-end partial you are still collecting payments while the buyer owns a future interest. The agreement should say who keeps the original documents, who services the note, what is recorded in the public record, and who acts and who pays if the payer stops while you are still the one collecting.
If your balloon is already close and the payer has told you they cannot refinance, the decision in front of you is a different one: what to do when a balloon is coming due and the payer cannot refinance.
Which end to sell
| If this matters most | Look first at |
|---|---|
| The best price for what you sell | Selling near payments, keeping the back end |
| Keeping your monthly income | Selling the balloon or the back end |
| Not being the one who deals with the balloon | Selling the balloon, or a full sale |
| Being finished with the note | A full sale |
The table narrows the choice. Prices settle it, and so does whether a buyer will do a partial on a note with a balloon like yours at all. Look up the balloon amount and its due date in the note itself, then ask us to price both ends. Give us those two facts with the note details and we will ask buyers for the whole note and for each structure they are willing to quote, so the ends can be compared on one note.
Related questions
Is a back-end partial the same as a straight partial?
No. A straight partial sells the next payments and returns the later ones to you. A back-end partial does the reverse: you keep the near payments and sell the later ones or the balloon.
Will a buyer pay close to the balloon amount for my balloon?
No. The buyer waits years for one payment that depends on the payer being able to refinance or sell. They discount for the time and for that uncertainty, so the price sits well below the balloon amount.
What if the payer cannot pay the balloon after I sold it?
The agreement decides. It should say who chooses between an extension, a modification and enforcement, and who bears the cost. Have an attorney read that clause before you sign.