Types of Mortgages - The Balloon Mortgage

The balloon loan is a short-term loan with a fixed-rate. With this type of loan, you can make small payments for an introductory period of time. That's because the interest rate is usually much lower than a fixed-rate mortgage loan.

After the introductory period -- normally five, seven or ten years -- you must either refinance the loan or pay off the remaining balance in a single lump-sum ("balloon") payment.

Most borrowers who choose this option intend to refinance before the balloon period arrives. But this can be risky, because refinance is never a guaranteed thing. In short, be very careful when considering a balloon option!

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