What Are Balloon Mortgage Loans?
A balloon mortgage loan is a form of fixed rate mortgage loan that comprises a fixed monthly repayment schedule and a lump sum “balloon” payment at the end of the term. Typically, balloon mortgage loans are based on the 30 year fixed rate mortgage with the lump sum payment due after a time period of 5 to 7 years. If you are considering this type of financing, unless you have a high degree of certainty that you will have the idle cash to meet the balloon payment at the end of the loan, you will either be forced to liquidate funds to pay it off or consider refinancing options. The attraction of balloon mortgage loans is that the interest rate on the loan can be lower than fixed loan counterparts resulting in lower monthly payments. This allows the borrower to save additional funds that would otherwise be committed to the mortgage payment. If the income opportunities from saving the additional funds or the potential for likely capital gain that can be realized from selling the home at the