Typically, when a consumer takes out a mortgage, they prefer a fixed rate loan with a specific payoff schedule of 15 or 30 years. This is considered a standard home mortgage. However, some consumers prefer a balloon loan where the loan matures far earlier, such as in 5 or 10 years. Balloon loans often have a feature that allows the borrower to reinstate the loan at the end of the balloon period, though often at a higher interest rate. Consumers who are seeking financing should carefully consider the risks associated with a balloon loan, including being unable to secure longer term financing or being subjected to higher interest rates. Balloon loans may be ideal if you are considering selling your home and wish to refinance to take advantage of lower interest rates. However, it is important to check the loan terms for prepayment penalties that could be costly for homeowners.
