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Balloon Mortgage

A balloon loan mortgage is financing that includes a lump sum payment in any point of the loan’s terms – typically at the end of the loan.


Balloon Loan Highlights

  • A balloon loan can have either interest-only or both principal and interest payment options.
  • Regardless of a balloon loan’s options (interest-only or principal + interest), the structure inherently excludes a full payoff through regular monthly payments and as such includes a lump sum payment that typically occurs at the end of the loan.
  • A balloon loan that includes principal and interest payments may be structured such that the interest rate is fixed or has an adjustable rate. 
  • Balloon loans typically are structured to have either five or seven year terms.
  • A balloon loan typically does not have a prepayment penalty.


The PROs and CONs of  Balloon Loans

  • PROs
    • Lower Monthly Payments – a balloon loan has lower monthly payments because the principal is not paid down (interest only) or is only partially amortized (ARM).
    • Home Affordability – a balloon loan’s lower monthly payment enables home ownership for those who may not otherwise afford to purchase 
    • Financial Flexibility in a Short-term Mortgage – In those situations where it is known home ownership will be short term, leveraging a balloon loan reduces the monthly expense and frees up monies for alternative uses, which would otherwise be devoted to a home’s amortization payment schedule.
  • CONs
    • Higher Risk for Borrower – to fulfill a balloon note’s lump sum payment a home may need to be sold, monies may need to be saved/available or a refinance strategy may need to be invoked.  Each of the above options introduce risk in association with the payment of the lump sum.  
    • Higher Risk for Lender – the lender takes a higher risk for balloon loans for the following reasons: (a) balloon notes have a higher foreclosure probability due to the outlay of the balloon payment and (b) zero or partial monthly paydown results a higher principal balance than that of a traditional loan over the same timeframe.
    • Market Conditions Can Impact Refinance Options – Interest rates on home values fluctuate and can have negative impacts when considering the refinancing of the lump sum balloon payment.
    • Traditional Loans Tend to Have Better Rates – traditional loans have lower risk than a balloon loan and thus typically have lower interest rates.


Got questions? 

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Working with MC Mortgage Group

  • We put YOU first.  We are committed to getting every client the very best possible deal every single time.
  • MC Mortgage Group offers some of the most competitive rates in the Nation!
  • Fast and efficient.  We close most of our loans in 30 days or less.
  • We offer a variety of loans.  MC Mortgage will find you the loan that is right for you!!!
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