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.
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.