One of the most important things to look into when choosing a home mortgage loan is to determine whether or not it has a balloon payment. If your monthly mortgage loan payment seems rather low, look into this. You may find a few years down the road that your mortgage loan payment will rise dramatically.

What is a balloon payment?

A balloon payment is different from an adjustable rate mortgage. With an ARM, you may find that your payment goes up some months, as the interest rate changes, but a balloon payment on your mortgage loan is a different proposition. Basically, you pay a low monthly mortgage loan payment at the outset, and then, when the initial term ends, the payment suddenly balloons – into a payment that can be quite a bit more.

Sometimes, the balloon payment is part of an option loan and the bigger payments finish out the loan term. However, there are balloon mortgages that end up with the final payment as one that finishes off the loan. That means after a few years, you have to finish paying the balance!

Even though these loans come with lower interest rates, and you will probably pay less over the life of your loan with many balloon mortgages, this can be devastating if the balloon payment falls due and you do not have the resources to pay.

Check out this balloon payment calculator.

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