balloon loans

Balloon Loans

A ballon loan is a short-term fixed-rate loan with low payments for a set number of years and one large final balloon payment of the remainder of the principal. This type of loan is a partially amortized loan.

The advantage of this type of loan is that the interest rate on balloon loans is generally lower that 30 year and 15 year mortgages, which results in lower monthly house payments. The disadvantage is that at the end of the term you will have to come up with a lump sum of money to pay off your lender. It is presumed that if the payments are made promptly, the lender will extend the balloon payment another limited term. However, the lender is not legally obligated to gran an extension.

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Conventional Loans: These loans are not insured or guaranteed by the federal government.

Government loans: These types of loans consist of VA (for veterans) and FHA (first time home buyer, troubled credit, little or no money down) Loans

Fixed rate mortgage Loan (FRM): Interest rate and monthly mortgage payments remain the same for the duration of the loan.

Adjustable rate mortgages (ARM): Interest rate and monthly mortgage payments fluctuate over the period of the loan.

Balloon Loans: A short-term fixed-rate loan with low payments for a set number of years and one large final balloon payment of the remainder of the principal.