What is a balloon?
A balloon is a fixed rate fully amortized mortgage. However, there is a balloon term. Meaning the unpaid principal balance is due and payable in full at the end of the balloon term. This loan will need to be paid in full at the end of the term or be refinanced. For example, a seven-year balloon will be due and payable in full at the end of the seventh year.
A lump sum payment that is due at the end of in the middle of the loan term that may be used to partially or fully reduce the unpaid balance of the loan. If the balloon is “popped”, that usually implies that the loan has been paid in full, which can happen when the Mortgagor either pays off the loan from personal funds or through a refinance.
