Question:

How is balloon mortgage amortization calculated?

Answer:

Balloon mortgage amortization is calculated for a large period of time, say, 20 or 30 years, and the borrower is then allowed to make those low monthly payments for a designated period - 5, 7, or 10 years in most cases. Once this period expires, the balloon mortgage becomes due in full, or adjusts into a fixed rate mortgage, according to the specific terms of the mortgage agreement.

For example, in a 7/30 balloon mortgage amortization is calculated over 30-year period and this is how payments are kept low and fixed for the first 7 years. After the initial period is over, the balloon is either due, or has to be refinanced after some rate adjustment.

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