What is a balloon payment? When is one allowed?

Loans with balloon payments generally have shorter terms than traditional mortgages, ranging between 5 and 10 years, compared to 15-30 years. They are designed to have lower monthly payments that do not fully pay off the loan over the term, and then a large last payment, called the balloon. A balloon payment is generally more than two times the loan’s average monthly payment and can often be a significant portion of your entire loan amount. A mortgage with a balloon payment can be risky because you’ll owe a larger payment at the end of the loan.

If you’re considering a balloon loan, you need to think about whether and how you can make the balloon payment when it comes due. If you are unable to make this payment, you could lose your home.

Tip:

Before the end of your loan term when your balloon payment is due, you may be able to refinance your loan to avoid the balloon payment. However, if the value of your property falls, or if your financial condition declines, you might not be able to do so. If you cannot pay the balloon mortgage, even if it’s on the last payment, you could face foreclosure.

Note, balloon payments are not allowed in loans deemed a “Qualified Mortgage”, with some limited exceptions.

Where this page came from

This page was imported from Consumer Financial Protection Bureau. Published by the Consumer Financial Protection Bureau and, as a work of the United States government, in the public domain.

Nobody has written it yet — it is the source material at a new address, which is why search engines are asked to skip it and why no one earns from it. It is up for grabs: take it on, and it is yours to rewrite and to earn from.