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A 'Balloon Mortgage' is a specific mortgage product that does not fully amortize3 over the term of the mortgage. A 'Balloon Mortgage' works by enabling low payments during the life of the mortgage which result in a larger balance due when the mortgage matures. The final payment is typically very large and is commonly referred to as a 'Balloon Mortgage' due to it being a large sum compared to the regular mortgage payments. Balloon payment mortgages are more frequently used in commercial real estate than in residential real estate. When a 'Balloon Mortgage' is used for real estate, the borrower will normally be required to demonstrate and prove a financial plan that shows how they will repay the final balloon payment. This could be via a savings plan for example.
'Balloon Mortgages' are popular for commercial properties as the intention is typically to refinance the balloon amount at the end of the term. This makes 'Balloon Mortgages' popular with start-ups and smaller businesses who may not have the necessary funds to acquire a property and operate their business successfully.
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