A balloon mortgage, also called a reset mortgage, offers lower interest rates with the option in 5 or 7 years to pay off the balance or resent the loan. Considered more risky than an ARM since interest rates can jump significantly, it is a valid option for those expecting to move or interest rates to drop.
Balloon Mortgage Features
Balloon mortgages are based on a 30 year amortization schedule, but you only pay those payments for 5 or 7 years depending on your loans terms. At the end of that period, you are required to make a balloon payment for the rest of the principal or resent the mortgage at current interest rates. Some financing companies also offer the option of refinancing the home loan.
With its unique interest rate structure, you can qualify to borrow more than a with a fixed rate mortgage. Balloon mortgages also have interest rates lower than a traditional home loan.
Balloon Mortgage Numbers
Balloon mortgages, like ARMs, use numbers to describe terms. The first number is the number of years until you reset the loan or make the balloon payment. The second number equals the rest of the loan term. Together both numbers equal the loans...
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