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Common Mortgage Types - Balloon Mortgage

A balloon mortgage involves paying off the balance of a loan before the term is complete. For example, the payment may be calculated over a 30-year period, but the balance will be due at the end of 7 years, at which point the borrower will typically refinance the mortgage with either their current lender or a new lender. Similar to an adjustable rate mortgage, a balloon mortgage usually treats borrowers to an initially low rate in exchange for a possibly high rate later. However, there is no limit on the rate increase after the initial payment period, which makes balloon mortgages riskier than ARMs.