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Business Definition for: balloon mortgage
Dictionary of Banking Terms
balloon mortgage

mortgage that does not fully repay principal and interest by the maturity date. A balloon mortgage, also known as a nonamortizing mortgage, has a lower debt repayment than a conventional fixed rate mortgage loan, and thus is attractive to new home buyers whose incomes may be expected to increase, or to people who expect to sell their property and pay off the loan in a much shorter period than if they had borrowed with a conventional, fully-amortized mortgage. The two types of balloon mortgages are the interest-only loan -a mortgage with payments that cover only the interest owed and the partially amortizing mortgage, also known as a rollover mortgage-a short-term mortgage that must be refinanced at the end of a stated term, usually three to five years.

See also negative amortization , Alternative Mortgage Instrument (AMI)
Dictionary of Real Estate Terms
balloon mortgage

a mortgage with a balloon payment .

Example: The balloon mortgage called for payments of $500 per month for 5 years, followed by a balloon payment of $50,000.

Related Terms:
negative amortization

financing arrangement in which monthly payments are less than the true amortized amounts and the loan balance increases over the term of the loan rather than decreases; the interest shortage is added to the unpaid principal. In some cases, the interest shortage is added back to the loan and payable at maturity. For example, amortized payments for the first six months of a 30-year mortgage loan would be based on a 13% rate, but interest would be charged against equity at 18%; this rate charge would fluctuate every six-month period. In some loans, the negative amounts may be made up by applying such deficits against the borrower's down payment equity. Federal law requires mortgage lenders to make sure that borrowers understand the potential impact of negative amortization in several interest rate scenarios through a series of extensive disclosure documents.

Alternative Mortgage Instrument (AMI)

any mortgage other than a fixed-interest-rate, level-payment amortizing loan.

Referring Terms:
Alternative Mortgage Instrument (AMI)
balloon maturity
mortgage
Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
 Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
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