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What is a balloon payment in a mortage loan?

2. Pay it off

While this sounds naïve, you may want to simply pay off the home loan when it is due—if cash flow is a non-issue for you. Of course, this is not always possible. After all, a lack of money is the reason you borrowed in the first place. What’s more, balloon payments can be tens of thousands of dollars more.

However, if you can generate the cash you need prior to the balloon payment deadline, you would be in the position to pay it off.

3. Sell the property

If you want to get out of a balloon mortgage, you can sell the property. This option works with which asset you bought with the loan (a vehicle, for instance). In this case, if you sell your property, you can use the money to pay off the balloon mortgage in full, assuming the property will generate enough money to pay the entire loan balance. Before the housing crisis, for instance, many properties were worth considerably less than the homeowners’ owed.

4. Pay more initially

While it is not a requirement, you might be able to pay some of the debt early on. If you pay more than the interest assessment, it will be applied to the principal balance. Keep in mind, however, that you will want to confer with your lender to make sure there are no extra fees or prepayment penalties.

5. Negotiate

Negotiate an extension. Like the refinancing option, an extension in this case would change the terms of the previous loan. Rather than getting a new deal, however, an extension would simply delay the timing of the balloon payment. In other words, you will have different obligation dates but still likely have the same payment terms as you did before.

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