Balloon Mortgages

Conventional Balloon Mortgages

Conventional balloon mortgages are fixed rate hybrid loans. You may also hear the term: rollover loan, extendable loan, 7/23, or 5/25 to describe these loans.

The most popular balloon mortgages have a fixed rate period of either five or seven years with a thirty-year amortization and no pre-payment penalty. The interest rate for these loans will be lower than the rates on standard 30-year fixed rate loans.

These loans are called balloons because of the balloon payment due at the end of the term.

How Balloon Mortgages Work
The most popular balloons for first mortgages have a fixed rate for five or seven years with a thirty-year amortization. At the end of 7 or 5 years the mortgage has several options:

The loan may be paid-off by refinancing or by selling the home.
Another option includes extending the loan for the remaining term. When the loan is extended, the interest rate is adjusted according to the original mortgage note provisions. Then the rate remains fixed for the rest of the loan term.

The note provisions normally call for the new interest rate to be calculated using the current net yield for 30-year mortgages plus a margin of .375 to .875%. This calculation usually results in a new interest rate of about .25% to .50% higher than what new 30-year loans are available in the market place.

There are usually conditions that must be met to take extend the loan. Typically, the conditions include:

The home is still your primary residence,
You have a good payment history and your payment is current, and
There is not a second mortgage or equity line on the property.

Generally, you should consider a Balloon over an ARM when you are more confident that you will not be in the home at the end of the fixed loan term.


    Fannie Mae
    Freddie Mac
Ginnie Mae


Discussion Forum

Recent Posts -


Balloon Mortgage

Homeowners - get fast, easy & free online mortgage answers.


Search MortgageSector for Low Rate Loans! Get Info & Apply online here.

Compare Balloons

Compare offers on interest on adjustable mortgages. Get Started now!


By visiting Allie Mae you have taken your first step toward becoming an educated borrower. Allie Mae is an objective, independent source of information for the mortgage consumer. Whether you are buying a home, refinancing, taking a home equity loan, building a home or in need of a mortgage for any purpose, Allie Mae is here to help. Allie Mae has helped thousands of people with their mortgage needs. We have a complete selection of articles, charts, calculators, and checklists designed to help you through the mortgage and home buying process.

© 2004 Copyright AllieMae. All Rights Reserved.
Privacy Policy   Legal  Terms & Conditions   Webmaster   Site Map    Application
About   Contact Us   Forum   Dictionary   Calculators   Articles   Free Content

Brought to you by JC Capital