Balloon Mortgages

When you get a mortgage to purchase your home, there are different types of mortgages you can get. One of the most common is a balloon mortgage. Many ask, "What is a balloon mortgage?" Balloon mortgages are non-amortizing loans and do not pay themselves off at the end of the long term. When the term is over, a portion of the principal remains and comes due in a single payment. With balloon mortgage loans, borrowers are assessed a series of equal monthly payments. Once the payments have been made in full, the borrower will have to make the final large payment, called the balloon.

There is a 15, 20 or 30-year amortization on a balloon mortgage and the loans can range from 1 to 25 years. The payments are based on this amortization schedule. With the aid of a balloon mortgage calculator, the lender can tell you exactly what your principal balance will be at the end of the term. Using a balloon calculator for a loan or mortgage will tell them how much of your payment is interest and how much is principal for the entire term.

Balloon mortgage rates are fixed rates on these type of mortgages. The monthly payments you make go towards almost all interest. The balance will be due after a short period, such as three to five years or even as long as a 7 year balloon mortgage. For instance, if a borrower takes out a $100,000 five year balloon mortgage at an annual percentage rate of 15%, the monthly payment will be $1250. Each borrower must make arrangements to pay off the principal when the time comes.

A balloon mortgage can be an affordable option for many home buyers. Balloon mortgages are usually a 3, 5 or 7 year balloon mortgages, but the payment is based on a much longer term. 7 year balloon mortgage rates are generally not as low as 3 year balloon. They often have a lower interest rate than an amortized loan, and can be easier to qualify for than a traditional 30 year fixed mortgage. There is, however, a risk to consider. Again, balloon mortgage amortization calculators can be great at entering different figures and playing the "what if" game. At the end of your loan term you will need to pay off your outstanding balance. This usually means you must refinance, sell your home or convert the balloon mortgage to a traditional mortgage at the current interest rates, which may be slightly higher than when you took your original loan out.

Balloon mortgage home loans are used quite frequently and work well for many couples. If you have an questions about a balloon mortgage, ask you lender to explain them to you. He can also give you a balloon mortgage form. You can also find this information online.