What Is A Balloon Payment Mortgage?

A balloon payment mortgage is a type of mortgage where the payments are amortized over a longer period of time than the loan is actually for. At the end of that time period, the terms for the balance are re-negotiated at the current rate.

This type of loan is ideal if you plan to buy a home, live in it for a few years and then sell it before the balloon payment becomes due. Your monthly payment will be considerably lower if for example, you finance a 10-year loan with a 30-year amortization schedule.

The interest rate for this type of loan can be fixed or variable. If your interest rate was fixed, it will then change to the current rate at the time of re-financing. This can be good or bad depending on whether the interest rates are up or down.

Check out this balloon payment calculator to see how your monthly payments would be affected by this type of loan. These are generally used in commercial and residential loans. You may find this type of loans works well for your situation. However, don't despair if it doesn't. There many more mortgage options available to suit your needs.

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