Balloon Mortgage

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DEFINITION of 'Balloon Mortgage'

A type of short-term mortgage. Balloon mortgages require borrowers to make regular payments for a specific interval, then pay off the remaining balance within a relatively short time. Some types of balloon mortgages can be interest-only for 10 years, and the final "balloon" payment to pay off the balance comes as one large installment at the end of the term.

BREAKING DOWN 'Balloon Mortgage'

Balloon mortgages have the option for early repayment or can be set up similar to a 30-year fixed-rate mortgage with the embedded option. The total debt repayment of these loans is lower than that of conventional fixed-rate mortgages. Balloon mortgages take the form of interest-only loans or partially amortizing mortgages.

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