Balloon Mortgage
A mortgage that has level monthly payments that will not fully amortize it over a stated term, but that provides for a lump sum payment to be due at the end of a specified term.
The balloon payment amount may represent slightly more than a monthly payment or may be substantial. This occurs because the fixed installment did not fully amortize the mortgage. The final payment is referred to as the balloon or bullet.
Disadvantage- Refinancing at the end of the term will likely generate origination or refinance charges.
- When the balloon payment is due, the loan can be refinanced at the prevailing interest rate. However, this could be a substantially higher rate.
- This option may still make sense if you will be selling the property before the balloon payment is due.