What is a Balloon Mortgage?
It is a loan payment that expands after a certain term is expired. Sometimes, the lower interest term of the balloon mortgage can run out in as little as five years. You can also get a 10-year balloon mortgage. Basically, this instrument functions similarly to a standard long-term fixed rate mortgage with a delayed spike in payments at the end — hence the term “balloon.” To secure and finance a big balloon mortgage, ask your lender when the balance of the money will be due, and understand the interest rate implications. It might help to compare balloon mortgage financing side by side with standard fixed rate mortgage financing. Many homeowners who sign up for balloon mortgages do so on expectations that they can refinance before the term comes due. These homeowners don’t want to pay full price for their homes, and they expect a bump in income to help them countenance later term balloon payments.
A type of mortgage in which the loan amount is amortized over the full length of the loan (usually 30 yrs), but the loan actually comes due after a few years (usually five or seven). The first payments go mostly towards interest. The balance of the loan is due in one final installment, called the BALLOON PAYMENT.
