When it comes to financing both commercial and real estate properties there are a variety of options available. You may have heard of a loan called a Balloon Mortgage. In this blog, we’re going to discuss what they are, why you don’t want one and what you can do to find a better solution for your financing needs.

A Balloon Mortgage seems good at first because you’ll notice they have a short loan term (5-7 years) and low payments for the first few months or years.

Balloon Mortgages are offered both in commercial (business) and residential scenarios. Construction companies often get these mortgages to help fund their building so that they can get funding upfront while paying the loan off in the allotted time frame.

What is a Balloon Mortgage?

I bet you can guess why these types of mortgages are referred to as ‘balloon mortgages.’ Yes, it’s because like a balloon, the payment goes up over time until the end of the term where you pay the entire amount upfront.

When the times comes that your balloon mortgage is almost finished you’ll be left with a large lump sum to pay to finish the mortgage which isn’t the best option or scenario for those who already didn’t have enough capital upfront.

The idea behind agreeing to a balloon mortgage has to do with the fact that hopeful people want to refinance the loan at the end of the term. While this does work for some people you should try to work on your credit and financing to get the best mortgage rate for your home or business.

You should also know that the first few payments you make (2-3 years) will be filled with high-interest rates so you’re actually not paying on the loan amount but on the interest rate. Now you see why this can be troublesome for those who agree to these terms.

Who Would Want a Balloon Mortgage?

Now, you’re probably wondering why anyone would go about getting this kind of mortgage. Well, when financial situations are tough and when someone is looking to finance a home or business with less than perfect finances they’re left with only one option and often times that’s a balloon mortgage.

Another reason for someone to seek a balloon mortgage is if they know they’ll only live in the property for a short time span and really want the property to rent out or sell to build their real estate portfolio. The last reason someone would agree to a balloon mortgage is similar to the previous reason – someone wants to sell the house/property quickly so they see it as a quick investment.

Going to a Mortgage Broker for a Better Deal

If anyone is going to get you a better deal or at least advise you on how to proceed with your property-owning goals it’s a mortgage broker. There are numerous loan options available that are all dependent on your needs.

Finding a reputable, trusted broker is essential if you want to save money in the long run and escape the clutches of the dreaded balloon mortgage.

To learn more about commercial and residential loan options don’t hesitate to reach out.  We’re happy to help you secure viable funding/refinancing:

(858) 324-1951

Keith McLaurin | Licensed Commercial Broker ID#01190109 / NMLS#1209195