Balloon Mortgage Loans:
Is it Right for You?
by Lisa Phillips
May 2007
Is it Right for You?
by Lisa Phillips
May 2007
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.
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.
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.
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.
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.
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.
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Related Topics:
- FHA Mortgage Loans, Basic Features and Loan Limits
- The Benefits of Fixed Rate Mortgages
- VA Homes Loans
- Hard Money Mortgage Loans
- Adjustable Rate Mortgage Loans
- Interest only Mortgage Loans
- Benefits of making Bi-Weekly Mortgage Payments
- Options to Foreclosure
- Stop Foreclosure with Forbearance
- How to Request a Mortgage Loan Modification
- Downpayment Assistance Listed by State