What is a balloon payment loan and what are the pros and cons to this type of loan?
• A balloon payment loan is a loan where the monthly payments will not pay off the entire principal balance over the term of the loan. For example, a 30/15 balloon means that your monthly payments are based on paying the mortgage off in 30 years, but the remaining balance will be due in 15 years. The primary advantage of a balloon note is that you will have the lower minimum payment of a longer term loan combined with the lower interest rate given to shorter term loans. The primary disadvantage to a balloon note is the need to pay or refinance the remaining balance at the end of the term of the loan. If you were to make minimum payments on a 30/15 balloon, your remaining balance at the end of 15 years would normally be 70-80% of the original loan amount. Answer Submitted on Sat, Nov 8 2008 Rate this Answer: Answer Contributed by: Kent Mikkola Kent Mikkola Mortgage Consultant M & M Mortgage, LLC Roseville, MN 651-558-9807 Direct 651-639-9803 Fax kmikkola@themmmortgage.
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