| Copyright RebuildCreditScores 2008. All Rights Reserved |
Balloon Mortgage Loans: Is it Right for You?
by Lisa Phillips
March 2008
by Lisa Phillips
March 2008
A balloon mortgage is a short-term, fixed
rate mortgage loan which does not fully
amortize over the term of the note. The
balloon mortgage usually has a lower
rate; however, that lower rate does not
last forever.
The balloon mortgage rate loan requires
a large lump-sum payment at the end of a
specified term, usually 5 to 7 years.
At the end of the term, the mortgage
“balloons” in amount and the principal
loan balance is due in full.
rate mortgage loan which does not fully
amortize over the term of the note. The
balloon mortgage usually has a lower
rate; however, that lower rate does not
last forever.
The balloon mortgage rate loan requires
a large lump-sum payment at the end of a
specified term, usually 5 to 7 years.
At the end of the term, the mortgage
“balloons” in amount and the principal
loan balance is due in full.
Many homeowners refinance at the end of the loan and some lenders offer a conversion
feature where the loan converts to a 30-year fixed loan, at current market rate.
Advantages of a Balloon Mortgage Loan:
Lower Interest Rate
A balloon mortgage will offer a lower interest rate. A lower interest rate means you may qualify
for a larger home with manageable monthly mortgage payments.
Fixed Interest Rate
The interest rate will not adjust or change when interest rates rise on in the market. Once your
interest rate is set, it will remain the same.
DownPayment
The down-payment on a balloon mortgage loan is lower than what is normally required.
Conversion Option
Many balloon mortgages offer the option to convert to a new loan after the initial term of 5 to 7
years.
Disadvantages of a Balloon Mortgage Loan:
Outstanding Balance Due
At the end of your mortgage loan term, usually 5 or 7 years, the principal loan balance is due
in full.
Sell the Property
If you are unable to refinance or convert the loan you may be forced to sell the property.
Little to No Equity in Home
A balloon mortgage loan does not pay down the principal of the loan therefore; little to no
equity is built in the home.
Risk of Foreclosure
A risk of foreclosure is eminent if you cannot afford the balloon payment, cannot refinance the
loan or exercise a conversion option.
feature where the loan converts to a 30-year fixed loan, at current market rate.
Advantages of a Balloon Mortgage Loan:
Lower Interest Rate
A balloon mortgage will offer a lower interest rate. A lower interest rate means you may qualify
for a larger home with manageable monthly mortgage payments.
Fixed Interest Rate
The interest rate will not adjust or change when interest rates rise on in the market. Once your
interest rate is set, it will remain the same.
DownPayment
The down-payment on a balloon mortgage loan is lower than what is normally required.
Conversion Option
Many balloon mortgages offer the option to convert to a new loan after the initial term of 5 to 7
years.
Disadvantages of a Balloon Mortgage Loan:
Outstanding Balance Due
At the end of your mortgage loan term, usually 5 or 7 years, the principal loan balance is due
in full.
Sell the Property
If you are unable to refinance or convert the loan you may be forced to sell the property.
Little to No Equity in Home
A balloon mortgage loan does not pay down the principal of the loan therefore; little to no
equity is built in the home.
Risk of Foreclosure
A risk of foreclosure is eminent if you cannot afford the balloon payment, cannot refinance the
loan or exercise a conversion option.
 |  |  |  |  |  |  |  |  |
Related Articles
