Borrowers paid the interest in a lump sum at the end of each year. The principal was due at the end of the loan period, which could be as short as one to five years. The borrower pays only the interest while the loan balance remains unchanged. This is a short-term loan with a final or balloon payment due at the end of the term. Monthly payments are usually calculated over a 30-year period.
Borrowers often refinance the loan before the term is up to avoid making the balloon payment.
This helps some borrowers budget for these expenses. Package Loan A package loan is a budget loan which includes personal property, such as appliances. This is a loan financed by the seller. This is a type of home equity loan or second mortgage which provides a line of credit. Blanket Loan A blanket loan involves more than one property offered as collateral.