Balloon Payment Loans

• A balloon payment loan is a loan that has a balance due at the end of its term. If you do not sell your home before the loan term is up, you will have to apply for and qualify for a new loan. This could be five, 10 or even 15 years from the date your loan originated. Since it is impossible to know what your financial situation will be like at that time, balloon mortgages are not a good choice for most people.
  
  

Fully Amortized Loans

• A fully amortized, fixed-rate loan has a monthly payment calculated to ensure that your balance will be fully paid at the end of the loan term. An adjustable rate, fully amortized loan will have the monthly payment amount adjusted periodically so that your loan is paid by the end of its term.
  
  

Refinancing

• Refinancing your loan when a balloon payment is due can mean that your payment may go up. It depends on interest rates at the time you refinance. Also, you may not qualify for a loan for any number of reasons. If that is the case, you may have to sell your home. You may have received a lower interest rate initially because of the shorter term, but balloon loans are rarely worth the risk.
  
  

Conclusions

• The safest loan to get is a 30-year, fixed-rate, fully amortized loan. There are no surprises with that type of loan. If you are certain you will be moving in a few years, you might consider a short-term loan with a balloon payment, but you may find that interest rates are very high or the housing market is bad and property values are depressed when you are ready to move. If you had a fully amortized loan, you could rent your home and wait for the market to improve.