Balloon Mechanics

Although the monthly payments of a balloon loan are calculated with a long-term amortization of (usually) 30 years, the balloon has a relatively short life.

At the end of the balloon's term—often called the balloon's maturity—the loan will have a large loan principal balance still remaining. The borrower must either pay off, in full, or refinance this remaining balance. This final, very large "balloon" payment is the origin of this program's name.

If the property is sold during the balloon's term, the loan balance is obviously paid off completely with the proceeds of the sale.

To provide a deeper understanding of balloon loans, this article looks at three elements of balloon programs:

  1. Amortization
  2. Variations
  3. Conversion Option

Was this article helpful?

0 0
What You Need to Know About Real Estate

What You Need to Know About Real Estate

Ready to Find Your Dream Home? Don’t Let the Search Turn into a Nightmare Discover the Tips, Tricks, Techniques & Secrets You Need to Know to Turn Your Dream of Owning a Home into Reality!

Get My Free Ebook


Post a comment