When buying a home and evaluating your mortgage loan options,
you'll likely encounter the term "balloon loan." This type of
loan allows you to make fixed payments for a certain period of
time, but then requires you to pay off the remaining balance in
one lump-sum payment.
Key Points of the Balloon Loan
* The interest rate on a balloon mortgage loan is almost always
lower than the interest rate on a traditional 15- or 30-year
mortgage loan. This is the primary benefit offered by this type
* The result of the lower interest rate, of course, is a lower
overall monthly payment.
* Balloon mortgage loans usually have a term of five to seven
years. After that, you must pay off the remaining balance in
full (either by refinancing or paying out of pocket).
* Some balloon loans can be converted to a fixed-rate mortgage
loan at the end of the original term. In such cases, the
fixed-rate loan will take on current interest rates at the time
* A balloon loan may be a good idea if you only plan to stay in
a house for five to seven years. It can save you money each
month, and if you sell the house before the term ends, you'll
avoid the lump sum payment.
Before deciding whether or not a balloon loan is right for you,
you should educate yourself on all of the loan types. It's also
a good idea to seek the advice of a qualified, reputable
If you only plan to stay in a home for a few years, a balloon
loan might be a good option for you. In most cases, a balloon
loan will offer lower interest rates than a conventional,
long-term loan. Educate yourself before choosing a balloon loan,
and be sure to have a plan in place for when the loan terms
ends. Always seek the advice of a qualified mortgage
* Copyright 2006, Brandon Cornett. You may republish this
article in its entirety, provided you keep the byline, author's
note and website hyperlink intact.
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