What Is a Balloon Mortgage and How Does It Work? 

Should You Consider a Balloon Mortgage? 

Today’s housing market is fast paced, and interest rates are a big factor when choosing the right home loan. A traditional 30-year mortgage can feel like a big commitment but it’s not the only option. One alternative is a balloon mortgage.  

In this article, we’ll break down how Honor’s balloon mortgage works, and why some buyers are choosing this flexible home loan option over a fixed-rate mortgage. 

Balloon Mortgage Explained: What Makes Honor Credit Union Different? 

A balloon mortgage is a type of real estate loan that offers lower monthly mortgage payments compared to traditional fixed-rate loans. When a balloon loan ends it will have one large final “balloon” payment for the remaining balance.  

But Honor Credit Union’s balloon mortgage doesn’t require a lump sum payoff.  

When your loan term ends, your rate simply adjusts to what Honor is offering at the time. It could go up, down, or stay the same based on your credit score and current market rates. We offer 5.5-, 7-, or 10-year balloon terms. The 5.5-year term is amortized initially over 30 years. All of Honor’s balloon loans start with a 30-year amortization. With each renewal, the balloon periods are subtracted from the remaining amortization period. 

For example: A 5.5-year balloon loan will be amortized over 30 years. After the first renewal, the loan will be amortized over 24.5 years. After that term, it will be amortized over 19 years, this process continues until the loan is paid off. 

How a Balloon Mortgage Works 

✅ Shorter Term – Usually between 5 or 7 years  

✅ Lower Monthly Payments – Calculated by the balloon mortgage model 

✅ 20% Down is Not Required – You have heard that you need 20% down on a home loan but that is a myth. While it can be a great strategy to put 20% down it is not required to get a home loan or an Honor balloon mortgage. 

Example:  

A $50,000 balloon loan at 6.44% APR will have 179 monthly payments of $371.17. The balloon amount (the 180th payment) will be $19,365.56. 

👉 Want to see what your payment could be? Try our mortgage calculator. 

Balloon Mortgage Benefits: Is It Right for You? 

Here are a few situations where a balloon mortgage loan might make sense: 

✔️ You Plan to Move Soon

If you’re planning to sell your home within a few years, the lower initial payments can be a great fit.  

Pro Tip: make sure your payments are reducing the loan principal—not just covering interest. 

✔️ You’re Buying a Unique or Nontraditional Property 
Some homes may not qualify for conventional financing. A balloon mortgage loan opens the door to greater financial flexibility, offering a powerful alternative if need be! 

✔️ You Expect Your Credit or Income to Improve 
If you know your financial situation will improve, refinancing in a few years could be part of your plan. Talk with one of our local mortgage experts to explore your options and start your plan! 

👉 Want to compare loan options? Check out Honor’s current mortgage rates. 

What Happens When a Balloon Mortgage Term Ends? 

With most lenders, the end of a balloon mortgage term means a large payment is due but not with Honor.  

When your term ends, your loan can be renewed based on your credit score and current rates. 

Here Are Your Options: 

✅ Automatic Loan Renewal 
Your rate adjusts to Honor’s current offer based on your credit and market trends, then continues into a new term. 

✅ Pay Off the Loan 
If you’re ready, you can pay the full remaining balance at the end of the term. 

✅ Refinance to a Fixed-Rate or Other Loan Type 
You can refinance your balloon loan to a conventional loan.

Pro Tip: Have funds set aside for possible closing costs.