Balloon

A balloon mortgage has a lower rate and lower monthly payments than a standard mortgage. Monthly payments on a balloon loan are fixed for the five- or seven-year loan term but the principal portion of the payment is not completely amortized over this five or seven year term. A final "balloon" payment for the entire remaining balance is due at the end of the term. Another way to explain this, the amount of your monthly payment is based upon a schedule that would require you to make continous monthly payments for 30 years in order to pay off the loan but because the term or length of the loan is much shorter than this ( five or seven years ) you are left owing an outstanding balance at the end of the term.

A balloon mortgage is a good option if you:

• Only plan to stay in your home for five to seven years
• Don't expect rates to rise significantly before the loan matures
• Expect to have the money to make the final payment at the balloon date
• Want predictable monthly payments