What is a Balloon Mortgage? Should You Consider it for Your Florida Home Loan?

What is a balloon mortgage?

This is a common question for those weighing their Florida home loan options. In general, this type of mortgage is a short-term fixed-rate loan in which the principal and interest payments are due for a set number of years - usually five, seven or ten. After this period, the remaining balance is paid off using one large “balloon payment.” The balloon payment can be dealt with by refinancing to a new Florida home loan.

Why choose a balloon mortgage?

Homeowners who select a balloon mortgage do so because it comes with a lower rate than a comparable 30-year mortgage.

Of course, an adjustable rate mortgage (ARM) can also provide you with a lower rate. However, there is a difference: with a balloon Florida home loan, your interest rate will change ONLY once when you refinance it. If you have an ARM and don’t refinance after the initial fixed-rate period, then it can adjust as often as every six months or every year. When it does, the rate could adjust to a much higher level and you could experience a payment shock.

It’s typical for a homeowner to move within ten years, so Florida home loans of this nature can help if you don’t plan to live in your home for longer than that. How? Because they supply you with a fixed rate for the term of the loan. If you have a seven-year balloon mortgage, you enjoy a fixed rate for seven years and you wouldn’t have to worry about your rate and payment going up during that time. It’s an issue of security.

Balloon mortgage warnings

Be aware that the right to refinance is not guaranteed. You need to keep your credit and finances in good standing. There are some balloon programs that will alow you to fix a rate at the end of the balloon period (based on current market).

Receiving a balloon mortgage is a good way to get a lower rate and payment than a 30-year Florida home loan or adjustable rate mortgage if you plan on moving by the time the loan term is up. As always, exercise caution before making any final Florida home loan decisions.