A balloon payment mortgage may have a fixed or a floating interest rate. The most common way of describing a balloon loan uses the terminology X due in Y , where X is the number of years over which the loan is amortized, and Y is the year in which the principal balance is due.
Brief Definition. A fixed-balloon mortgage allows the homeowner to pay only the monthly interest rate for a specified period, usually five, seven or 10 years, during the early stage of the amortization period. After the initial term expires, the remainder of the balance is due in one lump sum, or "balloon payment."
Balloon Mortgage: A balloon mortgage is a type of short-term mortgage. Balloon mortgages require borrowers to make regular payments for a specific interval, then pay off the remaining balance.
An alternative to a balloon mortgage is its close cousin, the adjustable-rate mortgage, or ARM. The typical ARM, for example, can have a fairly low interest rate that’s similar to the balloon.
If you’re near retirement and looking instead for a steady cash flow at a higher rate than you can earn elsewhere. And almost by definition, buyers who need the seller to carry the first mortgage.
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A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size. Balloon payment mortgages are more common in commercial real estate than in residential real estate.
Sure, a balloon mortgage could be a great deal if interest rates stay low, home values continue to appreciate, and your income and credit don’t drop, but those are pretty big "ifs" to gamble.
Similar to a traditional fixed mortgage, a balloon mortgage will have monthly installments that are charged at a fixed interest rate. This installment arrangement will, however, expire after a specified period of time (normally between 5 and 7 years) when the outstanding balance will become due, in full (balloon payment).
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