balloon loan

Better Know Your Loans: What is a Balloon Loan?

A Balloon Loan is the type of loan that tends to be an attractive option for short-term borrowers. Typically, they will have lower interest rates than long-term loans, but the overall plan may not be right for everyone.

For starters, unlike a conventional or FHA loan, a Balloon Loan doesn’t pay off interest and debt evenly. So unlike a conventional loan that will amortize over time – or simply reduce the balance – a balloon loan will pay off the interest as the priority and then require the remaining balance to be paid in full upon the completion of the loan.

Some balloon loans do have a reset option available, which essentially means you can start all over again rather than pay the remaining balance. You’ll want to see if this is an option before you take out a balloon loan, otherwise you will be expected to pay off the entire balance when the terms expire.

Balloon loans aren’t for everyone. Frankly, they only apply in very specific situations. No one loan has a one size fits all approach, though, so as always I encourage you to speak to a mortgage professional to determine what type of loan is best for you.

If you don’t have a mortgage lender in mind, I’d be happy to put you in touch with some of the lenders I’ve come to know and trust over the course of my career. Please reach out below and tell me how I can help.

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