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Balloon Mortgages

A Balloon Mortgage is one in which the loan is not fully amortized, or paid off, over the term of the loan. This means that in a balloon mortgage there will be a balance due when the loan matures. When the loan matures, the borrower will either have to pay off the balance of the loan or refinance the balance.

Click here to listen!A Balloon Mortgage may be an option if you don't plan on living in the home for very long. They generally give borrowers low interest rates and low monthly payments over a specific time period (usually between three and ten years). At that time the principal balance is due leaving the borrower with one large final payment (like an inflated balloon, hence their name). Often a borrower with a balloon mortgage will sell their home or refinance the loan before the "balloon goes up."

The downside of Balloon Mortgages would occur if the borrower's plans changed and they decided to stay in the home longer than the term of the loan. In this case they would either have to pay off the loan or refinance (which would involve another loan, time, effort, and expense...).

As with any loan, especially those involving your home, make sure your review and understand all your options before choosing any one type of loan product.