Balloon Mortgage

A balloon mortgage is a type of mortgage where monthly payments are typically based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a specific period (usually 5 or 7 years). The mortgage may contain an option to “reset” the interest rate to the current market rate and to extend the due date if certain conditions are met. The main advantage of a balloon mortgage is that it typically offers lower monthly payments than other types of mortgages. However, the balloon payment at the end of the loan term can be a significant disadvantage, especially if the property value has decreased or the borrower’s financial situation has changed. For borrowers who are confident that their financial situation will improve in the future, a balloon mortgage can be a good option. However, it’s important to have a plan to pay off the balloon payment at the end of the loan term.