Adjustable-rate mortgage (ARM)Īn ARM is a home loan with a variable interest rate. It may have higher interest rates than balloon mortgages, but you'd have more predictability and you won’t pay a balloon payment. At the end of your term, you’ll pay the interest you’ve accrued, plus the loan amount.Ī conventional mortgage has a fixed monthly payment that you pay for 15 or 30 years. No payment: You’ll pay nothing for the life of your loan, but you will accrue interest.Interest-only: You pay only interest, then you pay the entire loan balance.Balloon payment: You pay principal and interest for 5–10 years, then you pay the remaining balance.When that term ends, you’ll pay a lump sum.īalloon mortgages come in three main types: Generally, balloon mortgages are structured to let borrowers pay a reduced amount for a short period - usually 5, 7, or 10 years. » SAVE: Find top local agents through Clever Real Estate, get cash back after closing! But they can be risky, as they end with a large balloon payment that can be hundreds of thousands of dollars. But there’s a catch: after a short period, usually 7 years, you have to repay the entire mortgage balance with a lump sum payment - the balloon payment.īalloon mortgages are popular with buyers who don’t expect to live in their homes long and want to take advantage of lower interest rates. conventional | Pros and cons | Alternatives| Pay off your balloon mortgage | Summary | FAQĪ balloon mortgage is a home loan that initially has lower monthly payments than most 15- and 30-year mortgages.
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