Balloon mortgages are a rare beast in the field of mortgage loans, but they are an important contrast to the once-popular ARM or an interest only mortgage. This mortgage offers loan rates substantially lower than the norm and may be the perfect fit for real estate investors or anyone who expects to refinance soon.

How do Balloon Mortgages Work?

A balloon mortgage is a home loan which has regular payments for a short period of time and terminates with a "balloon" payment when the bulk of the loan must be repaid. A typical loan of this type might be a five- or seven-year mortgage, amortized over a thirty-year term at appropriate mortgage loan rates. Although the mortgage rate and payments are such that the owner would pay the loan off in thirty years, the remainder of the mortgage is due at the end of the prearranged term.