A Balloon loan typically offers rates lower than a traditional 30-year fixed-rate loan, but amortizes the payments over the same period. A balloon loan will have a term of either 5 or 7 years. At the end of this term, the full remainder of the loan becomes due. Many balloon loans, however, provide a "reset" option. This option allows you to reset the interest rate on the loan to the current market rate at the end of the 5 or 7 year term to a current market rate for the remainder of the loan's amortization.
Benefit:
- A lower initial interest rate can help you qualify for a larger loan amount.
- If you do not plan on staying in a home for more than 5 or 7 years, a balloon loan may be a good option.
Caution:
- If you choose to remain in your home for longer than the 5 or 7 year term, you will need to either reset the interest rate, or refinance your loan. Current market rates may not be as desirable at the time that the rate is reset or the loan is refinanced.
Contact us for more information about Balloon/Reset loans.
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