This is a mortgage where the one payment, usually the last one is bigger than any other payments. Balloon Mortgages are usually set up like a regular 30 year mortgage except that at some date in the future, a large balloon payment will be due. The balloon payment is typically the entire balance of the mortgage. The due date of the balloon payment and it’s relationship to all other monthly payments is spelled out in the terms of the mortgage agreement.
How are balloon mortgages structured?
They are usually quoted in terms such as 5/30, 7/30 or 10/30. This means that a large payment is due at the end of the 5th year (payment 60), the 7th year (payment 84) or at the end of the 10th year (payment 120). At this time, the entire loan balance is due.
Rollover Clause
First clarify with your Mortgage Lender or Agent that you are indeed signing up for a balloon mortgage. Then, get a rollover clause attached to your balloon mortgage agreement. The rollover clause says that at the end of the mortgage term, 5, 7 or 10 years, the loan will automatically rollover into another type of mortgage. This will protect your assets in case you are not able to come up with the full payment on the due date.
Anything you can do to protect yourself when you have a balloon loan is preferred, since most lenders are less likely to work with you to come to an agreement on the due date