What is a mortgage balloon loan?

Answer

A balloon loan mortgage has a fixed rate, but unlike conventional 30 year mortgages, a balloon mortgage usually lasts just five to seven years. When the loan term expires, the mortgage balance must be paid in full. At that point, the borrower generally refinances, unless he has the money to pay off the loan.

Why get a balloon payment?

People who opt for a balloon mortgage often don’t intend to stay in the house for the life of the loan. They might make some money selling the house if its value has increased, but the balloon mortgage provides gives them little or no equity in the dwelling.

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