Balloon Mortgage
A balloon mortgage is a type of loan that offers lower monthly payments for a fixed period, followed by a large “balloon” payment at the end of the loan term. During the initial period, typically ranging from five to seven years, borrowers make regular payments based on a fixed interest rate and a shorter amortization schedule, resulting in lower monthly payments compared to traditional fixed-rate mortgages. However, at the end of the initial period, the remaining balance on the loan becomes due in one lump sum, requiring the borrower to either pay off the entire balance or refinance the loan.
It’s essential for borrowers considering a balloon mortgage in Virginia to carefully review all loan documents, including the promissory note and the Truth in Lending Act (TILA) disclosure, and to consult with a qualified financial advisor or real estate attorney to fully understand the terms and implications of the loan. While balloon mortgages can offer lower initial payments and flexibility for certain borrowers, they also carry inherent risks, particularly if the borrower is unable to make the balloon payment or refinance the loan at the end of the initial term.