What is a Balloon Mortgage

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What is a Balloon Mortgage?

A balloon mortgage works like a fixed-rate mortgage, except for a much shorter term, with lower monthly payments, and a large "balloon payment" at the end of the loan's term. Taking on a balloon mortgage can be a risky proposition as it assumes that you will sell or refinance your property in terms that allow you to cover the balloon payment.

advantages: For disciplined borrowers that intend to sell the home [or refinance] before the balloon payment is due, this loan allows them to get more home for their money since the monthly payments are lower than a typical fixed-rate mortgage.
disadvantages: Homeowners that cannot afford the balloon payment can run into trouble, especially if the loan requires them to refinance the payment through the original lender (often at rates higher than from another lender).

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