A balloon mortgage may be a good option for many potential homeowners. The term of a balloon mortgage is usually rather short, from 1 to 10 years. The payments for this type of mortgage, however, are based on a term of 30 years. Balloon mortgages often carry a lower interest rate, and are often easier to qualify for than a traditional 30 year fixed rate mortgage. This benefit comes with a risk. At the end of the balloon's term, you need to pay off the outstanding balance of the loan.
The variables used in our online calculator are defined in detail below, including how to interpret the results.
The total amount of money borrowed for this balloon mortgage, also referred to as the principal of the loan.
This is the annual interest rate on the balloon mortgage. This is not the APR, which takes into account other costs associated with the mortgage.
The term of the loan is the number of years over which the mortgage will be paid. The most common balloon mortgage terms are 1 to 10 years.
This is the calculated monthly mortgage payment for the loan itself, not including mortgage insurance or property taxes, which are sometimes included with your mortgage payment. With a balloon mortgage, even though the term of the loan may be less than 10 years, the monthly payment is based on a term of 30 years.
The total amount paid to the bank or lending institution over the life of the balloon mortgage. This calculation takes the monthly payment and multiplies it by the number of months for this loan.
This is the total amount of interest charges over the term of the balloon mortgage. This is the cost of borrowing money from the lending institution.
This is the amount of principal that is paid down over the life of the mortgage. Unlike a conventional loan, the total principal is not paid off during the term of a balloon mortgage.
The balloon payment due is the money that must be refinanced at the end of the balloon's term. Homeowners carrying a balloon mortgage intend to either sell the home before the balloon terminates, or believe they may eventually qualify for a conventional mortgage, which will allow them to pay off the entire principal.
Balloon Mortgage Calculator - Copyright © 2005 - 2015 Money-Zine.com (Last Reviewed on February 1, 2015)
Disclaimer: These online calculators are made available and meant to be used as a screening tool for the investor. The accuracy of these calculations is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.