(Loan Payment Options 3) Loans with Balloon Payments

In mortgage-speak, a balloon payment is where the loan balance is due in a lump sum at a future date. These loans are usually short term, 10 years or less, and sometimes require at least a monthly interest payment, while others have accrued interest due at the end. Loans with balloon payments are usually put together with the idea of refinancing in the near future. A common example is the construction loan taken out to build a home, which is then refinanced once the house is finished. Also, some home equity credit lines and second mortgages have the balance due in 10 to 15 years, with only a minimum interest payment due each month.