Benefits and Risks of a Balloon Mortgage

Balloon Mortgage Calculator

The calculator gives you three calculation options: determine the amount of an annuity or determine the amount of the loan or determine the amount of the loan and the balloon amount.

1. Enter monthly payment
   Enter a monthly payment, an interest rate, an estimate of the years after which the balloon is due and a number of years to calculate the monthly payment (years in which the same monthly payments would pay off the loan). The calculator calculates the amount of the loan, the balloon amount and the amount of interest.
2. Entering the loan amount
   Enter the amount of the loan, the interest rate, the number of years after which the balloon falls. You get the calculation of the monthly annuity, the balloon amount and the amount of interest.
3. Enter the amount of the loan and the balloon amount.
   Enter the amount of the loan, the balloon amount, the interest rate and the period for the balloon. You get monthly annuities and the amount of interest.

When you press the “CALCULATE” button you get an Amortization schedule and two charts. The first one shows the distribution of the annuity on interest and the repayment to maturity of the balloon, the other the total of refunds, the return of the balloon and the total of the interest.

Balloon Mortgage Calculator

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Choose which information you will define	Monthly payment Loan Amount Loan Amount + Balloon Amount
Monthly payment
Loan Amount
Balloon Amount
Interest rate (%)
Balloon period (Years)
Amortization period (Years)
Total interest paid

Would Be a Balloon Mortgage a Good Option for Me?

A balloon mortgage is usually a cheaper alternative to comparable types of loans. It has lower interest rates and smaller monthly payments than many other mortgage plans. Therefore, it is certainly a very tempting option for many home buyers. Especially for investors and those, who plan to sell their home before the mortgage term ends. It has many benefits, but it is also not without risks. So you have to be careful and consider all pros and cons before you choose what type of mortgage. This article and a good mortgage calculator can help you compare different loan plans and make a right decision.

What is a balloon mortgage?

A balloon mortgage is a short-term loan that gets its name after a large ‘balloon’ final payment at the end of the mortgage term. Usually, the balloon mortgage term is 5, 7 or 10 years, but the regular monthly payments are amortized for a longer period of time. Monthly balloon payments are calculated as if the loan would be paid as standard 10-year to 30-year fixed mortgage, but the mortgage term is much shorter. Therefore, at the end, the balloon payment mortgage is not fully amortized or paid off. So after a relatively short time of regular monthly payments a significantly larger final ‘balloon’ payment is required.

Lower interest rates than most other types of loans

The right type of mortgage can save you a lot of money and trouble. You have to know that every type of loan has different advantages. Absolutely the biggest advantage of a balloon mortgage is a lower interest rate compared to other options. Due to a large final payment at the end of a mortgage term, balloon mortgage monthly payments are also smaller and more affordable for your budget. Another benefit is that borrowers seeking a balloon mortgage may often get a larger mortgage amount that they would with other mortgage plans.

Are there any risks and how to avoid them?

All the advantages of a balloon mortgage may seem very attractive, but they do not help you if you do not have enough money to pay off the loan. After enjoying a few years of smaller monthly payments with lower interest rates, toward the end of the mortgage term, it is time to pay a very much bigger amount of money to cover the remaining of the loan. The biggest risk is that you would not have the money to make the final balloon payment at the end of the mortgage term. If you cannot afford to pay the final balloon payment, you can lose your home in foreclosure. It is important to think about this risk before the end of the balloon period or even before you choose the right mortgage type. Some balloon mortgages can be refinanced, what is the best solution in case that you cannot afford to pay the final balloon payment. However, do not forget that at the end of your balloon mortgage term interest rate could be different or even much higher than today, so your loan will probably become more expensive.

Should I Choose a Balloon Mortgage?

Investors love balloon mortgages. Why? That kind of loan is absolutely a very good option not only for investors but for all people who plan to sell their home before the end of the balloon period. That kind of mortgage may also usually be a good choice for people who plan to have higher income within a few years or know that they would be definitely able to pay a balloon payment at the end of the mortgage term. If you are not sure that a balloon mortgage is a right option for you, use a Loan Comparison Calculator and compare a few different mortgage types and plans. However, do not forget that a balloon mortgage can be quite risky, so it is not always the best option for everybody! If you calculate that it would save your money and you are sure that you would not have any trouble to pay a final balloon payment, then a balloon loan mortgage is the right type of money loan for you!