What To Consider About Balloon Mortgages

Posted on: 14 June 2019

Do you need a loan for a home that has a low interest rate and is short-term? If so, you may not want to get a traditional 30-year loan with a fixed APR. Balloon mortgages can be a great way to give you the money you need at the rate that you want. Here are some things to consider about balloon mortgages before you move forward with getting one.

How Balloon Mortgages Work

A balloon mortgage is very different from a traditional loan. You will be making smaller payments up front that are based on a lower interest rate or only paying the interest on the loan. There will then come a date where you need to pay off the remainder of the loan as one large payment. This means you need to have the cash on hand at the time the payment is due, or you need to look into alternative ways to finance the loan. This includes refinancing to change to a different type of loan

How Balloon Mortgage Can Benefit You

The interest rates on balloon mortgages are low, which results in a very low monthly payment. It is also considered a short-term loan, which a lender views as being low-risk, which is why they are able to offer that low interest rate.

For those monthly payments during the initial part of the loan, you can select to pay toward the principal or just pay the interest. While the latter results in a lower payment, it will cause the balloon payment at the very end of the mortgage to be higher. Including the principal amount of the payments can help lower how much you owe at the very end. Hopefully, if you are using a balloon mortgage, you are planning to have the full amount of the final payment on hand so that this isn't an issue.

Balloon mortgages are great for people who are buying properties with the intention to resell them immediately, which keeps the interest rate on the home low during the time that they own it. It can also be great if you are living in a home for a little while, potentially due to your job, and you know you will be moving out by a certain date.

Interested in getting a balloon mortgage? Reach out to a local mortgage lender in your area for assistance. They can give you more details about this type of loan, so you can determine if it's right for you. 

For more information on your home loan options, contact a lender.