What is a Balloon Mortgage Loan?

A balloon mortgage loan is a type of loan that allows you to put off paying for the principal of the loan until the end of the term.  The principal of the loan is not addressed until the end of the loan term. Therefore, you will have to make a large payment in the amount of money that you originally borrowed at the end of your mortgage.

Considerations

This type of mortgage can be very attractive because it allows you to make smaller monthly mortgage payments throughout the life of your mortgage. The drawback to this type of mortgage is that you are not going to be addressing any principal on the loan. You will not accumulate any equity in your house and you will have to come up with a large amount of money at the end of the loan term. Many people do not take into consideration how they are going to pay for the balloon payment and they are unable to make the payment.



Can you turn a second balloon mortgage into a fixed-rate mortgage?



You could potentially turn a second balloon mortgage into a fixed-rate loan in certain cases. In order to do this, you need to refinance your existing balloon mortgage. This will require you to apply for a new loan and then use the funds from that loan to pay off the existing loan. At that point, you will be able to choose a fixed-rate loan for the new loan type that you will be paying. This will give you a fixed payment that will pay off the principal of the loan instead of leaving it until the end of the term. 

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