What is a balloon loan?

A balloon mortgage is usually rather short, with a term of five to seven years, but the payment is based on a term of 30 years. They often have a lower interest rate, and can be easier to qualify for than a traditional 30-year fixed mortgage. There is; however, a risk to consider. At the end of your loan term, you will need to pay off your outstanding balance. This usually means you must refinance, sell your home or convert the balloon mortgage to a traditional mortgage at the current interest rates. A balloon loan may be a good option if the initial rate is lower than that of an adjustable rate mortgage with a similar initial term, particularly if you are fairly confident you will be selling the home before the balloon term is over.  more

A balloon loan is usually a five or seven year loan calling for payments which are insufficient to fully amortize the amount of the loan before the maturity date. This creates a principal sum, known as a balloon payment, which is due at maturity.  more

A balloon loan is a type of short-term mortgage. The balloon loan is often compared to the fixed-rate mortgage, as it shares some of its features. For example, a balloon loan offers the borrower a level payment amount over the term of the loan. However, unlike fixed-rate loans, balloon mortgages don’t amortize during the original term. Instead, this type of loan may have one of many maturity types. When most borrowers take on mortgages, they obtain loans that will be fully repaid over a set amount of time. This length of time is referred to as the loan term. Balloon loans do have set loan terms, just like other types of mortgages. However, the monthly payments the borrower makes are not sufficient to repay the loan. As such, the borrower ends up owing a lump-sum payment, consisting of the remaining principle, at the end of the loan term. Often, mortgage borrowers take on loans that last for 10, 15, 20, or even 30 years. Once the borrower makes his final monthly installment payment, ...  more

In some respects, a balloon loan looks very much like a 30-year fixed-rate mortgage (FRM). The payments are calculated in exactly the same way. In both cases, the payment is the amount required to pay off the mortgage in full over 30 years. Where the two instruments differ is that, after a specified period, generally 5 or 7 years, the outstanding balance (the "balloon") has to be repaid in full. [Note: In 2006, 15-year balloons became fairly common, but as the second mortgage component of piggyback arrangements used to avoid payment of mortgage insurance on loans with down payments of less than 20%. See What Is a 15-Year Balloon? The financial crisis that erupted in late 2007 resulted in the disappearance of piggyback balloons.] For example, on a $100,000 loan at 6%, the payment on a 7-year balloon and a 30-year FRM is $599.56. On the balloon, however, the balance of $89,638 after 7 years has to be repaid in full. If the borrower is still in the house, unless he has come into a ...  more

Balloon programs are ideal for borrowers who know they will not occupy the home for long periods of time. For example, the borrower may plan to move in 3 to 7 years and sell the home. Since balloon loans usually have shorter terms (usually five to seven years) than a typical fifteen or thirty-year loan, the interest rate is often less than that on a fifteen or thirty-year conventional loan. A balloon mortgage usually offers many of the features of a fixed-rate loan, such as converting the loan to a longer term in the event of unforeseen changes in the future.  more

A balloon loan is usually a five or seven year loan calling for payments which are insufficient to fully amortize the amount of the loan before the maturity date. This creates a balloon payment, which is due at maturity.

A balloon loan is a loan that calls for periodic payments which are amortized over a longer period than the term of the loan. With a balloon loan, a final principal sum known as a "balloon payment" is due at maturity.  more

• Secured home equity loan with payments calculated over a longer period than its actual term • Fixed monthly payments do not completely payoff the loan • Remaining principal balance is due at the end as a balloon payment

With a balloon loan, the buyer is expected to pay off the unpaid balance of the loan completely within a fixed period of time, usually in three, five, or seven years, instead of making regular payments to completely pay off the loan. The interest rate can be fixed or variable, but in all cases the (usually substantial) unpaid balance is due at the time specified. Usually, the borrower must either refinance or sell the home to pay off the loan. Because most payments at the beginning of the loan go to pay off the interest rather than the principal, the balance at the time of the loan payoff will probably be nearly the same as the original loan. To attract buyers, builders often offer balloon loans during periods of high interest rates when home sales are sluggish. In most cases, the interest rate will be lower than prevailing institutional home loan rates. However, if interest rates are high when full payment is due, refinancing may not be possible. The balloon will burst, resulting in ...  more

A short-term fixed-rate loan which involves payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.  more