Balloon Mortgage: Definition, Who It’s For, Pros and Cons
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A balloon mortgage is a home loan with low monthly payments for a few years, after which you must pay the remaining balance in a lump sum. You get a lower interest rate than with longer-term fixed-rate mortgages, in exchange for having to pay off the outstanding loan amount after a set period, often between five and 10 years.
Balloon loans are rare because they're considered risky.
Who a balloon mortgage is for
A balloon mortgage may be suitable if:
You're certain that you will sell the property before the balloon payment comes due.
You're sure that you'll receive a lump sum at least equal to the balloon payment before it comes due. That could be something like a bonus or series of annual bonuses, an inheritance or the sale of another property.
You'll refinance the loan before the end of the term.
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