Question:

Balloon Mortgage Definition

Answer:

A balloon mortgage resembles a fixed rate mortgage with premiums evenly spread over a fixed period. However, a balloon mortgage does not amortize over the assigned period. Rather, it will have a balloon payment due at the end of the term; hence the name.

For example, a 30/15 balloon mortgage will have monthly payments as if the mortgage would amortize in 30 years. However, at the end of the 15th year, the remaining balance becomes due. Usually, at this point the borrower has to pay off or has to refinance. Other types of balloons are the 20/10 or 15/10 balloon mortgage types.

Adjustable rate mortgages are often offered as an alternative to balloon mortgages.

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Why: Refinance to a fixed rate loan while mortgage rates are still low.
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Common misspellings: mortage and morgage