Balloon Loans

Balloon loans are short term mortgages that have some features of a fixed rate mortgage .A long term loan often a mortgage, that has one large payment (the balloon payment) due upon maturity. A balloon loan will often have the advantage of very low interest payments, thus requiring very little capital outlay during the life of the loan. Since most of the repayment is deferred until the end of the payment period, the borrower has substantial flexibility to utilize the available capital during the life of the loan. The major problem with such a loan is that the borrower needs to be self-disciplined in preparing for the large single payment, since interim payments are not being made. Balloon loans are often undertaken when refinancing or when a major cash flow (A measure of a company's financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization ) event is anticipated. also called balloon note or bullet loan.

Is a Balloon Loan Better Than an ARM?

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