Balloon mortgages are short
term mortgages that have regular monthly payments which amortize
over a stated term, but call for a final lump sum payment
(balloon payment) at the end of a satisfied term. Balloon
mortgages have some features of a fixed rate loan but have many
types of maturities. Most balloon mortgages that are first
mortgages have a term of 5-7 years.
At the end of this initial
term, the mortgage lender will require that the note be paid in
full. The most common way to pay off this loan is through
refinancing. Some balloon mortgages already have a built-in
refinancing and is converted to a 30 year fixed or other loan.
The obvious reason for
acquiring a balloon mortgage is for the initial low interest.
They are very useful for someone who anticipates remaining in
the home for a short period of time.
Some Benefits of a Balloon Mortgage:
- Rates are generally lower
than a 30 year fixed rate mortgage
- Buyer can qualify for a
larger home because of lower interest rate
Balloon Mortgages are a good option if:
- You will be selling your
home in four to five years
- Believe that interest
rates will decline in the near future
- Are prepared to refinance
your loan when the balloon payment is due
