Balloon Mortgage
Low payments for a set term with the full remaining balance due at the end.
Overview
A balloon mortgage offers low monthly payments based on a longer amortization schedule (typically 30 years), but the entire remaining balance comes due after a shorter term (usually 5-7 years). At that point, the borrower must pay off the balance, refinance into a new loan, or sell the property. Balloon mortgages are uncommon for residential purchases today but are still used in commercial real estate and by investors with a clear exit strategy.
Min. Down
10-20%
Min. Credit
680
Term
5 or 7 (30-year amortization) yr
PMI
No
Best For
- Real estate investors
- Buyers with a clear exit strategy
- Commercial property purchases
- Those expecting a large cash event (inheritance, sale)
Pros
- Lower monthly payments during the term
- Lower interest rate than comparable fixed-rate
- Useful for short-term property ownership
- Can be advantageous for investors
- Simple loan structure
Cons
- Large balloon payment due at term end
- Refinancing risk if rates increase or credit changes
- Risk of losing the property if unable to pay balloon
- Very limited residential availability
- Not suitable for long-term homeownership
Requirements
- Minimum 680 credit score
- Documented exit strategy
- 10-20% down payment
- Proof of ability to handle balloon payment
- Full income verification
- Property appraisal