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Hemlane Review: A Detailed Guide for Landlords
When exploring Hemlane reviews across the internet, it’s clear that this property management software offers a high level of customer service and many useful features. But will...
Balloon Payment Definition: A balloon mortgage is a financing strategy in which a homebuyer makes low payments throughout the loan period but pays a lump sum at the end of the mortgage term.
It’s a common term used in real estate financing. People often use “balloon mortgage,” “balloon payment,” “balloon loan,” or “balloon clause” interchangeably.
Since the balloon loan is not fully amortized, the borrower makes a substantial payment, or a balloon payment, at the maturity period (5-7 years) of the balloon mortgage.
Balloon mortgages allow real estate investors and homebuyers to access low-interest loans without offering collateral. Real estate investors use balloon mortgages to get an unsecured loan that allows their business time to grow before having to pay the lump sum amount.
Balloon mortgages differ from traditional mortgages in a number of ways. Most notably:
The common length for a balloon loan is five to seven years. However, some creditors may issue a payment term as short as two years.
In a fixed-rate loan, the interest rate charged remains the same throughout the specified loan period. The interest rate is not subject to fluctuations in the market. Variable rate loans, on the other hand, will have the interest rate adjusted to align with the market conditions.
If you take a balloon mortgage of $400,000 to finance your home with a five year term and 4.5% interest rate, your monthly payment for five years will be $ 2,027. At the end of five years, you would pay a balloon payment of $366,658.
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