Types Of Mortgages-Balloon Payment

A balloon is a lump-sum payment that pays off the loan in full after a fixed period of time. The rates on balloon mortgages are usually 1/4% to 3/4% less than on 30-year fixed mortgages, but during an initial period of between 3 and 15 years, payments are similar. After this period, the remaining outstanding principal balance is either due in full or subject to refinancing. The balloon payment method is ideal for home buyers who are planning to sell before the final payment is due. However, because property values fluctuate, you may not be able to sell when you want. You may also face higher payments if you are forced to refinance at a higher rate, and there is also a risk that you may not be in a position to refinance when the balloon becomes due.