The Balloon Mortgage: Is It Right For You?

A balloon mortgage starts out like every other home loan. But then, something big happens. Here’s what you need to know.

What is a balloon mortgage?

A balloon mortgage is structured as a typical 30-year principal- and interest-payment loan for a set period of time, say five or 10 years. But at the end of that five- or 10-year term, a lump-sum payment, equal to the remaining balance of what you owe, is due. The benefit: a lower interest rate than with longer-term fixed rate mortgages.

So, you have a normal loan for a few years and then BAM! Pay up, you’re done.

Who would want such a thing?

When a balloon mortgage might be right for you

A balloon mortgage may be a good idea if:

• You know — with a high degree of certainty — that you aren't going to still be in the property when the balloon payment comes due

• You expect, again with a great deal of confidence, that you're going to receive a lump sum at least equal to the balloon payment that will come due. That could be something like a bonus or series of annual bonuses, an inheritance or the sale of another property.

• You believe — there’s that confidence again — that you'll be able to refinance the loan before the end of the term

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