Balloon Loan
Definition of 'Balloon Loan'A type of loan which does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan. |
|
Investopedia explains 'Balloon Loan'Balloon loans can be attractive to short-term borrowers because they typically carry a lower interest rate than a loan with a longer term. However, the borrower must be aware of refinancing risk and/or the risk that the loan will reset at a higher interest rate.Some balloon loans, such as a five-year balloon mortgages, have a reset option at the end of the five-year term that allows for a resetting of the interest rate (based on current interest rates) and a recalculation of the amortization schedule based on a remaining term. If a balloon loan does not have a reset option, or frequently even when it does, it is expected that the borrower will sell the property or refinance the loan before the end of the original loan term. |
Related Definitions
Articles Of Interest
-
Understanding Your Mortgage
We walk through the steps needed to secure the best loan to finance the purchase of your home. -
Mortgages: How Much Can You Afford?
Answering this means number-crunching as well as factoring in other considerations and expenses. -
Understanding The Mortgage Payment Structure
We explain the calculation and payment process as well as the amortization schedule of home loans. -
This ARM Has Teeth
Find out how to avoid getting bitten when your mortgage rate resets. -
How To Properly Research For The Best Mortgage Rate
You’ve probably been told to shop around for the best rate, but what exactly does that entail? Find out how to ensure you're getting the best possible rate on your mortgage. -
What Is A Mortgage?
A mortgage is a loan used to purchase a home, where the property serves as the borrower's collateral. -
Financial Risks That Don't Pay Off: The Cost Of Reckless Financial Behavior
Despite the recessions, citizens continue to take financial risks and spend outside of their means without fully appreciating the potential consequences for both themselves and the wider economy. -
Student Financial Aid Changes: FAFSA 2013
Here is a look at some of the major changes to FAFSA in 2013 and how they will affect students' financial aid. -
A Lousy Investment That May Be A Good Source Of Income
In the past few years reverse mortgages have been heavily marketed as the way to become debt, and worry, free. For some seniors a reverse mortgage makes sense, for other though this dream product ... -
10 Steps To Help Erase Errors On Your Credit Report
According to a study conducted by the Federal Trade Commission, one in four consumers identified errors on their reports that might affect their credit rating in 2013.
Free Annual Reports