Balloon Mortgage


Balloon Mortgage

A balloon mortgage is a short-term mortgage. They work similarly to fixed rate mortgages with consistent payments, but payments are usually much lower because towards the end of the mortgage life a large balloon payment is due.

Pros:

  1. Do not suffer when market rates rise
  2. Predictable P&I payment
  3. Lower interest rate than conventional loans

Cons:

  1. If the interest rate falls, you could be stuck paying a higher rate
  2. Initial interest rate is higher than ARM
  3. May need to refinance to pay off balloon
  4. Rates at payoff could be unattractive

 

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