In this brief guide, we are going to discuss getting a mortgage with a balloon payment, how to get a balloon payment mortgage and what you should consider.

What is a mortgage with a balloon payment?

A mortgage with a balloon payment is one in which the amortization of the mortgage is not complete during the mortgage term. This means there is a mortgage balance left to pay at the end of the mortgage. This mortgage balance left to pay at the end of the mortgage term is known as the balloon payment.

Balloon payment mortgages are more commonly found with commercial mortgages due to the huge capital commercial borrowers may require for their construction.

A mortgage with a balloon payment is in exact opposite to a self-amortizing mortgage where your periodic or monthly mortgage repayments of both capital and interest will ensure that the mortgage balance is 0 at the end of the mortgage term.

Self-amortizing mortgages are more common with residential mortgages.

A mortgage with a balloon payment can either have a fixed interest rate or a floating interest rate.

The balloon element of the balloon payment mortgage is usually refinanced at the end of the mortgage term.

Use a mortgage broker for your mortgage in principle

You may want to use an independent mortgage broker to help you get a mortgage on your new home.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle

This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.

This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.

FAQs: Mortgage with a balloon payment

What happens when a balloon mortgage is due?

Once a balloon payment mortgage is due you will be required to pay off the balloon payment in full. The mortgage lender would have sent out several notices to you to remind you that the balloon payment is due.

In this brief guide, we discussed getting a mortgage with a balloon payment, how to get a balloon payment mortgage and what you should consider.

If you have any questions or comments please let us know.

If you are in need of advice about your money and you live in the UK then you may contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.