The balloon mortgage appeals to investors and business owners alike with its extended amortization schedule, allowing an added degree of flexibility. Beginning with a lower monthly rate for a pre-determined period (usually anywhere between five and 10 years), the balloon mortgage ends its term with a large lump sum, often referred to as the “balloon payment”. While the borrower has several years to prepare for the imminent balloon payment, once it comes due, the borrower must pay it in full. And it’s typically significantly larger than their monthly payments up until that point.
Benefits of Balloon Mortgages
(1.) Lower Monthly Payments
(2.) Short-Term Investment Strategies
(3.) The Interest Rate Advantage
Drawbacks of a Balloon Mortgage
(1.) The Looming Balloon Payment
(2.) The Rhythm of the Market
(3.) Rigid Constraints
Does a Balloon Mortgage Work for Your Strategy?
In most cases, balloon mortgages can be attractive options for investors who employ short-term strategies or can hedge their bets with capital and/or refinancing options. But even then, a balloon payment can create profound risks if met without the right amount of planning and foresight. And there’s also the potential of dramatic market shifts to consider. If you think a balloon mortgage sounds right for your investment strategy, make sure to stay in close communication with your preferred lender, financial counsel, and Real Estate professionals.
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