Balloon Payment Resources



Balloon Payments

When you think of a balloon, what comes to mind is a large rubber pouch filled with air. Also, what comes to mind is the frightening sound of one of these pouches exploding under pressure. While a balloon can be an innocent toy, a balloon payment -on the other hand- is significantly more dangerous.

Balloon payments are portions of a home equity loan that are not financed. By financed, we mean scheduled to be paid off gradually over a period of time. When being introduced to a balloon payment, many people are pleased by the promises of less fees, lower interest rates, and the amount of time they have before the payment is due.

You should be aware of the fact that a balloon payment is due in full at the end or some point during your loan's term. This amount will vary depending on the type of loan you have, and how much of the total loan amount was financed. No matter which loan type you choose, know that balloon payments are risky business.

If you do not have the money now, there is no guarantee you will have it 10 years later. Balloon payments can be significantly large, and many factors can affect your ability to come up with such a large figure. A lender will tell you that once you are near the end of the term, you can always refinance the balloon payment.

The idea of refinancing sounds fine but what if your credit rating is damaged due to some un-foreseen issue like skyrocketing interest rates. In addition to this, you are paying interest on the complete amount of your home equity loan, including the balloon payment, thoughout the entire home equity loan term.

Unless you have a way to guarantee payment in the future, (i.e. the sale of you home or a plan to pay the amount in full using an income tax refund) the balloon payment should not be an option. Talk to your lender about other possible solutions. If you can not afford the loan without the balloon payment, you might have to accept that you can not afford it.

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