Balloon Mortgages Offer Small Payments But Large Risks

Balloon Mortgages may offer lower monthly payment but will come with a higher risk. Mortgage bankers have brainstormed the balloon mortgage, a tool that offers buyers affordable monthly payments while purchasing a home slightly above your means.

A balloon mortgage is really a combination of 2 loans. The first is fixed rate that can last from 3-10 years. The initial stage has lower monthly payments that a traditional 30 year fixed mortgage loan.

Once the initial loan period is up, the remaining balance is due. One big payment is due to the bank, but many refinance it into a new loan. Getting a good refinancing payment depends on many factors including your credit score and the current interest rate.

Why Choose a Balloon Mortgage?

Many buyers hope that by the time the fixed rate is up, they will be making more money and will be able to afford the increased costs. Many homeowners go into a balloon mortgage with a plan to sell the home in 5-7 years before the huge balance is due.

Balloon mortgages give the potential to save money the first few years, but in the long run they may get you into a sticky situation.