A balloon mortgage carries a fixed rate, just like a regular 30-year mortgage. The trick is, in three to ten years, the full remaining balance comes due.
Things You'll Need
- Online Mortgage/finance Services
Proceed with getting a balloon loan exactly as you would for any other mortgage. (Note the distinguishing factor that a balloon mortgage generally carries a lower-than-normal fixed interest rate for the initial period - usually three to ten years.)
Ask the lender about the interest rate.
Ask the lender when the balance will come due.
Ask if there's a refinance option when the balance comes due.
Ask if the refinance option (if any) can be lost or forfeited, and if so, how.
Ask if you would have to re-qualify for a mortgage when the balance comes due.
Tips & Warnings
- Balloon mortgages are generally seen as a short-term solution to a financing problem.
- While refinancing might seem like an easy option, remember that it's never a sure thing. Also, consider the worst-case scenarios: What if you lose your job and cannot refinance? What if interest rates soar and you're faced with refinancing at an astronomical rate?
- In the real estate business, balloon loans are also called "bullet loans," because if the loan comes due during a period of high interest rates, it's like getting a bullet in the heart.
- If rates rise more than 5 percent above the balloon interest rate, you could be required to re-qualify and have the home reappraised.