Follow Us Here:Mortgage Lenders Plus on Facebook
Mortgage Lenders, Home Mortgage Lender, Home Loan Lenders, Mortgage Lenders Plus.com! Mortgage Lender, Home Mortgage Lenders, Mortgage Lenders Plus.com!
 
Mortgage Application Mortgage News Mortgage Calculators Home Equity Loans Mortgage Loans

Balloon Mortgages

A balloon mortgage is a loan that is issued with a low fixed interest rate for an initial period, much like an ARM. Usually that period is five or seven years. At the end of that period, the borrower must pay off the loan in full (the "balloon" payment). Unless the borrower has received an inheritance or done exceptionally well in Las Vegas, he/she will be forced to refinance the loan.

Some balloon mortgages come with "reset" clauses that provide for the original lender to reset the loan terms so that the loan is fully paid off in the remaining twenty three to twenty five years. The interest rate that is applied is the prevailing rate at the time. If there has been a precipitous rise in interest rates, the borrower is going to be stuck with a costly loan. For the initial period however, the interest rates on a balloon mortgage are usually a little lower than a comparable 5/1 or 7/1 ARM.

Most people that take out balloon mortgages assume that they'll be moving within the seven year period, or that they will be eligible for a more attractive loan at the end of the seven year period. Once again, individuals in this position are assuming either that their household income will have improved; that a loan with low interest rates will be available; or that they will be in a position to take advantage of increased home valuation and sell the property at a profit.

Otherwise, a balloon mortgage without a reset clause can be costly. Refinancing an entire mortgage is an expensive proposition, with closing costs in the thousands of dollars. The advantage of a balloon loan with a reset is that the loan payment will remain constant for the remaining life of the mortgage. The disadvantage is that an upward shift in interest rates may make refinancing a necessity - into an ARM that will help keep the monthly payment manageable but will lead to further uncertainty.

Refinancing requires a decent credit record in order to get a decent loan. The advantage of an ARM over a balloon payment is its thirty year tenure. The lender is stuck with a borrower who makes erratic payments. A balloon with a reset clause can be at the option of the lender, who may make the decision based on the first five or seven years of payment performance.

Request Quote
View Privacy Policy
Mortgage Calculators

Fixed Rate vs. Interest Only
Mortgage Loan Payoff
Simple Mortgage Calculator
Mortgage Loan Comparison
Savings Goal Calculator

View mortgage calculators >>
Mortgage Tools & Help

Mortgage Identity Theft
Glossary of Mortgage Terms
Ask a Mortgage Lender
FREE Mortgage Quotes
Find a Real Estate Agent
Find a Real Estate Appraiser
Predatory Mortgage Lending
Basic Mortgage Checklist
Rates & Mortgage Calculator
updated Thursday, October 19, 2017

Mortgage Type Today Last Week Change
30 yr fixed 6.03 6.24   0.035%
15 yr fixed 5.47 5.72   0.046%
5/1 ARM 5.34 5.43   0.017%
3/1 ARM 5.48 5.42   0.011%
Your dream of home ownership, refinancing, or using your homes equity might
just be an application away. Simply fill out our short form and get quotes from
mortgage lenders near you!

Simple Payment Calculator
Loan Amount
Interest Rate
# of Years

Mo. payment
Total Interest
See more mortgage calculators
   
Mortgage Lender, Home Mortgage Lenders, Mortgage Application
Choose Your State's Mortgage Lender Guide
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
D.C.
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming

About | Contact | Webmasters | Sitemap | Feedback | Mortgage Help | Mortgage Loans |
Home Equity | Internet Mortgage Leads | Lender Login

Mortgage Lenders Plus.com is an advertiser supported mortgage lender directory. Copyright 2000 - 2017, Mortgage Lenders Plus.com. All rights reserved. Use of this website constitutes acceptance of our updated privacy and disclaimer policies.

Comodo SSL        Mortgage RSS