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Balloon Mortgage
What Is a Balloon Mortgage?
A balloon mortgage is a loan that features lower monthly payments for a set period, followed by a large lump-sum payment at the end of the term.
It typically includes:
- Short repayment period (5–7 years)
- Smaller monthly payments
- Large final “balloon” payment
Why It Matters in a Mortgage
Balloon mortgages may offer:
- Lower initial payments
- Short-term financing flexibility
However, they carry risk if the borrower cannot refinance or pay the large final balance.
Because the remaining balance does not fully amortize, the borrower must plan for repayment.
How It Works
Loan: $300,000
Term: 7 years
Monthly payments based on longer amortization
Remaining balance due at year 7
Balloon vs. Fully Amortized Mortgage
Balloon → Large final payment
Fully Amortized → Paid off over full term
FAQs About Balloon Mortgages
Are balloon loans common today?
Less common in residential lending.
Can balloon loans be refinanced?
Often, but not guaranteed.
Are they risky?
They require strong financial planning.
Related Terms
