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Ask Shop Rate: J.P., Baltimore, MD

Posted by  on Apr 16, 2009
 
What is meant by the term "balloon payment" in referring to a mortgage loan? When you have a mortgage which has a balloon payment, it means that you have a balance remaining on your mortgage, hence your mortgage does not fully amortize of the life of the loan. Typically, you would make your monthly mortgage payments throughout the entire life of the loan until the last payment is due, when you will have one large, lump sum payment due. At this point you can either pay the amount due, sell the property or refinance the remaining balance into another mortgage loan which helps to spread out the payments into more reasonable amounts. It is wise if you have a balloon mortgage to keep an eye on interest rates and be prepared to refinance when the lowest possible rates are available instead of waiting until the balloon payment is due and be at the mercy of interest rates at that time.



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