What are Balloon Loans

The Loan Store Online
The Loan Store Online

Mortgage FAQ

Balloon Loans
These tend to be short-term loans. You borrow money for, say, three or seven years, and the loan is amortized as though it were a 30-year loan. At the end of the three- or seven-year period, you owe the bank all of the remaining principal, in one lump sum -- like a big balloon. Again, these loans tend to have lower interest rates than the standard 30-year mortgage. If you're not planning to stay too long in your house, you might be interested in such a loan. The reasoning goes like this: You pay less in interest over the course of the loan than you would with a 30-year fixed loan -- saving potentially thousands of dollars. So, you're less out-of-pocket when it comes time to sell.

Keep in mind, though, that if for some reason your plans change and you want to stay in the house, you're going to have to pay off the loan in full -- by getting another loan, at the prevailing interest rates and with the attendant costs of getting that new loan. So, it isn't for the faint of heart or irresolute of mind.

Regardless of what type of mortgage you're interested in, you also need to figure out where you'll get it from: a bank or a mortgage broker.