Balloon Mortgages

Written by Norene Anderson
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Balloon mortgages are mortgages for short-term loans. They are typically for 3-10 years. The interest rate is lower than on conventional long-term fixed rate mortgages. The balance of the loan is due at the end of the loan date. This is a good option for someone who plans to live in a home for a short time and then sell.

If the balance is not paid off, it must be refinanced. That often carries a higher interest rate than the balloon mortgage. Some mortgage companies offer a conversion option with the note. In this case, the balloon note balance will automatically convert to a 30-year fixed loan at whatever the market rate is for thirty years plus 3/8 of a percentage point. There are very strict guidelines to meet in order to qualify for this type of loan.

Understanding Balloon Mortgages

This is a great way to save on the initial cost of the mortgage. All is well if things go as they are planned and you sell or have signed up for a conversion loan. If not, you may have difficulty refinancing the balance. It may increase the closing costs to get a new loan. Make sure of your options when considering balloon mortgages as the plan for you.

Balloon mortgages can be a smart move if the circumstances are right. A balloon note for ten or fifteen years gives you the opportunity to have a lower mortgage payment.The lower payment will enable you to wisely invest for paying off the remaining principal when the final payment is due. If you are able to manage your money to set aside and invest, you can have the benefit of a lower house payment and be able to pay off the mortgage in fifteen years instead of thirty.


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