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What Makes It A Balloon?

Picture a balloon in the process of being inflated. The section connected to the air tank (or your lips) is stretched out long and straight, and rather thin. At the far end, however, it’s substantially larger – big and round and potentially ready to burst at some point. That’s the shape of a balloon loan. Or, if you prefer a more technical description, traditional loans like your 5-year fixed rate truck loan or a 30-year adjustable rate mortgage are “fully amortizing.” You pay a combination of interest and principal until your balance is zero. A balloon payment mortgage doesn’t fully amortize. The balance comes due before your monthly payments naturally reduce it to zero.

Balloon mortgages allow the borrower to make small, sometimes minimal payments for a brief period at the start of the loan (two to five years is typical, although much longer loans are sometimes utilized for special circumstances). After that initial period, however, the full balance of the loan is due – hence the “balloon” imagery used to describe these sorts of loans. Early payments may be comparable to what they’d be for a twenty- or thirty-year loan, or possibly lower. Other times they’re set up so the borrower only pays towards the interest until the balloon payment comes due. In some circumstances, borrowers pay nothing at all for the first several years.

A balloon payment mortgage is relatively high-risk for both the lender and the borrower, and not recommended for most normal circumstances. It’s a specialized financial structure intended for a few specific situations and not ideal for the average home buyer even if they’re technically able to qualify. Interest rates can be steep because of the higher risk to the lender, and borrowers who are for any reason unable to make the required balloon payment may find themselves in serious difficulty. Other times, borrowers are able to secure lower-than-average interest rates, especially if the lender shares the borrower’s confidence in their ability to pay off the loan when the balloon comes due.

In short, the details of balloon loans can vary widely depending on specific circumstances – fixed rates vs. adjustable rates, the size of initial payments, and the length of the actual loan are just a few of the most common elements subject to negotiation. Because they are a specialized sort of mortgage, they are often tailored to fit the individual’s situation.

Prior to the mortgage crisis of 2007, it was not unusual for buyers to utilize balloon mortgages as a way to increase profits from essentially flipping their homes every few years. The idea was to buy low, finance at low-interest and making low-initial payments, then sell the property for a profit within a few years. They’d be able to pay off the initial loan and have money left to move on to the next one. This approach to balloon mortgages is far less common now and intensely discouraged.

When Is A Balloon Mortgage A Good Idea?

Balloon mortgages are ideal for those in the construction industry. The low initial payments allow time for the actual building of new homes or business properties, after which the intention is to sell or lease the completed product. At that point, the initial borrower can either pay the balance in full or refinance based on the assessed value of the finished property. Because the completed home or business space is now available to act as collateral, the borrower is more likely to secure better interest rates and other terms.

Businesses may utilize a balloon structure as well, although not always as a mortgage. A company may choose to finance equipment upgrades, increased inventory, or other costs of growth so that initial payments are manageable for the first several years. The expectation is that they’ll quickly recoup the resources necessary to pay off the full balance within a few years – the “balloon” part of the equation.

There are times a balloon mortgage might make sense for an individual as well. If you know you’ll be moving in the near future, and have confidence you’ll be able to sell your home for more than you paid for it, a balloon loan can mean much lower monthly payments during the years you’re in the house. The same may be true for homeowners who are relatively assured of a substantial increase in their income within a few years, or who expect their credit score to dramatically improve, at which point they can refinance the home on more traditional terms.

Up, Up and Away

If you choose a balloon mortgage, you have several options when the balance comes due. It’s important to have a pretty good idea of how you’re going to handle your balloon payment well in advance. There may be circumstances in which a leap of faith or stepping forward without a net is laudable and bold; paying the mortgage on your home is not one of them.

Option #1: Sell the Property. This is one of the few situations in which a balloon payment mortgage might be a great way to go. There’s inevitable risk in such a plan, of course, because there’s no guarantee you’ll be able to sell the property at sufficient profit and in ample time to pay off the balance of your loan. During the housing and mortgage crisis just over a decade ago, many borrowers ended up owing more than their homes were worth and unable to pay.

Option #2: Refinance. This option assumes something has changed since your initial financing – your credit has dramatically improved, your income has increased, or interest rates have fallen. Otherwise, there’s no benefit in refinancing this way. You’d be better off simply taking out a traditional mortgage to begin with. Refinancing assumes you’ll qualify for extended terms and that the value of the property in question is equal to or greater than the amount being refinanced.

Option #3: Pay the Balloon Payment. For whatever reason, you have the resources to do what you couldn’t or didn’t wish to several years before when you first took out the loan. It may be simply a matter of budgeting and aggressive saving, or you may have known an inheritance was coming or a settlement of some sort was being negotiated. Once again, there’s an element of risk any time we’re relying on things to work out just so – especially when it comes to money. Don’t wait until the final balloon payment is due to formulate other options if this one doesn’t seem to be working out the way you’d planned.

Loanry® is here to help you get your Balloon Mortgage Loan


Why Loanry?

Nothing about home mortgages, whatever their structure, is intended to be quick or easy, nor should it be. But shopping for a mortgage online gives you many options and conveniences you wouldn’t necessarily have otherwise.

The most obvious benefit is the 24/7 access to information and financial tools you have with any connected device, from wherever you happen to be. Research local mortgage options, compare interest rates, or submit your application to any lender you choose – all at your own pace and at your convenience. Educate yourself about different types of mortgages and the terminology associated with each. Weigh the pros and cons of balloon mortgages, refinancing, home equity loans, or any of the other ways to finance your home. As long as you have access to a computer, laptop, or phone, you can do business when and where it works for you.

It’s a good idea to begin any financial journey by checking your credit score for free and making sure your credit report is accurate. Use one of our online loan calculators to experiment with different interest rates and repayment schedules to see how each impacts your monthly payment and the totals paid over the life of the loan. When you’re ready, we’ll ask you to provide a little basic information about yourself and your current needs. We’ll search our database of reputable online lenders and offer help you find a lender who may fit your needs. The rest is between you and the lender. They want your business and you need beneficial financing; we’re betting you can work something out that everyone’s happy with now and throughout the life of the loan.


There are at least three guiding questions you should ask yourself before taking out a balloon mortgage or any other sort of loan, whatever its structure or size.

First, what need or desire does this address, and how? We should always take a little extra time to ensure that any major financial commitment has a good chance of accomplishing what we hope it will. Is the amount sufficient? Have you planned out how it will be applied? What’s the timing look like for each step of the process? And above all, are you sure you’re ready?

Second, how does it fit into your budget? What will the payments look like and how will you make them? If you don’t already have a fairly reliable record of your monthly income and recurring obligations, make one before considering a mortgage or any other major financial decision. Don’t base your ability to pay on how much you have in your checking account right now. How reasonable is it to believe you’ll be able to make those payments in full, on time, every month?

Finally, what are your long-term goals? Where do you hope to be in a year, or five years, or twenty years, as a result of making this decision today? What are the most likely obstacles along the way, and how do you anticipate dealing with them? What can you do to increase your chances of reaching the most important of your financial and personal goals?

There are no guarantees, no matter how well you plan, but if you can’t answer these questions – at least to yourself – you’re not ready to take out a balloon mortgage or any other sort of home loan. Take a moment to evaluate your circumstances and your goals, and the logistics of making them happen. No matter how good or bad things are at the moment, it’s worth the extra planning time and consideration. It’s not about discouraging you – it’s almost always possible. But let’s go in with our eyes fully open and the possibilities fully engaged.


Loanry and the rest of the family are about more than just helping you find a lender. We’re determined to provide users like you with the information and resources you need to take more effective control of your personal and small business finances across the board. We believe that with a little time and the right information, most of us are quite capable of making good decisions and taking meaningful steps towards improving our current circumstances while securing a better future for ourselves and those in our care.

It’s with that in mind that we’ve designed what we like to think of as a “content mall” of related sites covering just about every aspect of personal and small business money management. You can learn about different sorts of savings accounts and investment options on or check your credit scores on Read up on an effective household budget or watch a brief video outlining the different types of small business loans and how to best prepare for tax season. Use our online tools to compare loan options or estimate interest.

Whatever you need to know, there’s a good chance it’s covered in plain, simple English and freely accessible from wherever you like, whenever you like, in one of our thousands of informational blog entries or our hundreds of videos. We’ll never tell you what to do, but we’d like to help you make more informed decisions along the way.


Did You Hear?

"The homes I like the best are totally occupied, busy, and useful, whether it's a tiny little house or a great big one. Rarely do you find a great big house that's used in a good way. So I prefer smaller spaces that are full of books, full of things that people are doing.

Martha Stewart (American Businesswoman, Television Personality, and Best-Selling Author)

Educate Yourself

What Comes Up must Come Down.

A Balloon Mortgage is no Exception.

Balloon mortgages are a rather unique device for paying for a home or other property. While they may be advantageous in certain circumstances, it’s important to understand the different sorts of mortgages available and the pros and cons of each. We’ll talk you through some of the important terminology and key issues as you consider your loan, as well as other sorts of mortgages you may find more appropriate. Then, when you’re ready, we’ll connect you to a reputable online lender ready to earn your business and answer any other questions you may have.

Whether you’re a first time home-buyer, starting your own brick-and-mortar business, or looking at options as you move forward in life, Loanry is here to simplify the decision-making process and empower you to accomplish your financial and personal goals. It may not always be easy, but it doesn’t have to be as hard as it sometimes seems. And you don’t ever have to do it alone.

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Pros and Cons of a Balloon Mortgage Loan

A Balloon mortgage comes with with ups and downs. If you know you are able to make a big payment down the road, then spending less today can be an advantage. Just be prepared for that ballon payment when the time comes!

Pros: Lower Payments

With appropriate qualifications, a balloon mortgage allows you to make minimal payments at a lower-than-average interest rate during the early stages of the loan. For expanding businesses or individuals confronting temporary circumstances, this can provide greater financial flexibility.

Pros: Lower Interest

While not guaranteed in all situations, some lenders offer substantially better interest rates for balloon mortgages due to the assumption they’ll be paid off in a shorter time period. There’s less risk of something going wrong over five years, for example, than over thirty.

Pros: Temporary Circumstances

If you know with some assurance that you’ll soon be making or receiving more money, selling the property in order to move, or refinancing on better terms due to lowering interest rates or an improved credit score, a balloon mortgage makes more structural sense and can save you thousands of dollars over a few short years.

Cons: High Risk Structure

If you’re unable to sell at the price you’d anticipated, your income doesn’t increase, or interest rates don’t do what you predicted, you can find yourself owing a substantial amount of money all at once with limited options.

Cons: Unpredictable Elements

Many of the factors you’re relying on for a balloon mortgage to work are out of your immediate control. You can manage your household budget, but not property values in your area, the national economy, or interest rates in a volatile market.

Cons: The Best Laid Plans...

It’s essential that you have a detailed plan for paying off your balloon mortgage. You should also have a “Plan B” in case your initial plan falls through, as well as a “Plan C.” The only thing worse than discovering your balloon mortgage payment plans aren’t playing out as you’d anticipated is realizing you have no idea how to effectively change course.

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We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


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