A five-year balloon loan has a five-year term. The borrower pays lower monthly payments based on a 30-year amortization schedule. At the end of the five years, the borrower must make a large final payment, called a balloon payment, to pay off the remaining loan balance. However, a balloon loan can also offer benefits like lower interest rates and easier qualification terms compared to a traditional 30-year fixed mortgage. Borrowers may take out a balloon loan if they plan to sell their home within five years. Overall, balloon loans allow flexibility but require careful planning around the balloon payment.
A five-year balloon loan term is 5 years. The borrower pays lower monthly payments. This is based on a 30-year schedule. At the end of the five years, a large final payment is made. This payment is called a balloon payment. It pays the remaining loan balance. This poses a risk that the borrower may not afford this large payment. However, benefits exist too with lower interest rates and easier qualification terms compared to a 30-year fixed mortgage. Borrowers may take a balloon loan if selling their home within 5 years. Balloon loans allow flexibility but require careful planning for the balloon payment.