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What is a Balloon Mortgage?

A balloon mortgage can be any length of time. Some require monthly payments or principal and interest and some require payment of interest only. When the loan comes due at the end of the term, the balance needs to be repaid in full. Balloon mortgages can be paid in one of two ways. The first is when the mortgage is amortized over 15 or 30 years and the principal and interest is paid off monthly until the term ends and the remainder of the loan is paid off. The second way of paying off a balloon mortgage is to pay only the interest on the loan monthly until the term of the loan is up and then to pay off the principal entirely. This type of a loan was much more common before the great depression.

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June, 2012

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