What is a 5 year balloon mortgage?

A 5 year balloon mortgage is amortized over thirty years, just as a fixed rate mortgage to determine the monthly payments. However, at the end of the initial five year period, the balance of the loan is due. The benefit of having a balloon mortgage is the reduced monthly mortgage payments from a low interest rate. Since the lender is able to offer a lower interest rate during the five year period, homeowners who plan to sell within five years would benefit the most from the balloon mortgage. Another option for a homeowner is to refinance and obtain a fixed rate mortgage once the full loan amount is due.

blog comments powered by Disqus