Q: What is the advantage of a balloon loan?

A: A balloon loan is a shorter term loan typically due in five to seven years. The monthly payments are kept low and are structured like those of a longer term fixed rate loan, but these payments are not enough to cover the principal when the loan matures. At the end of the loan term, the borrower must pay a lump sum amount, or balloon payment, to make up the difference.

Balloon loans have some competitive rate advantages over other types of loans and are great for borrowers who plan to move or refinance before the loan is due. For more information on balloon loans and how they work, consult your mortgage professional today!