Balloon Mortgage: With a balloon mortgage, you make monthly payments over the mortgage term, which is typically five, seven, or ten years, and a final installment, or balloon payment, that is significantly larger than the usual monthly payments. In some cases, you pay only interest on the loan during the mortgage term, and the entire principal is due in the balloon payment. Many balloon mortgages offer a conversion feature that lets you extend the loan at a new interest rate. For instance, some balloon mortgages convert to a 30-year fixed-rate mortgage at the end of their original term. You might choose a balloon mortgage if you anticipate being able to refinance at a favorable rate at the end of the term or if you’re confident you’ll have enough money to pay off the loan in a lump sum. But you may risk losing your home when the balloon payment is due if you can afford to buy the home only because of the comparatively smaller monthly payments that may be available with a balloon mortgage.

 

Related Words

Balloon Mortgage: With a balloon mortgage, you make monthly payments over the mortgage term, which is typically five, seven, or ten years, and a final installment, or balloon payment, that is significantly la . . . View Full Definition

Mortgagee: In a mortgage transaction, the party who receives and holds a mortgage as security for a debt, the lender. A lender or creditor who holds a mortgage as security for payment of an obligation.

Mortgagees Title Insurance: An insurance policy protecting the lender for the amount of the loan in the event of a future title dispute.

Mortgage-Backed Security (MBS): A security guaranteed by pools of mortgages and used to channel funds from securities markets to housing markets. Ginnie Mae has a popular MBS program recognized for its low risk and high yi . . . View Full Definition