This is when the borrower has been paying only the interest, or some combination of interest and principal, and when the loan term expires the balance is due in full. The balloon payment is more common to second mortgages. But after coasting along with easy payments, a balloon payment can be an ugly ending. You don't know how interest rate cycles are going to change several years down the road, and you can't look into the future and know the exact worth of your home. And if you can't pay your balloon off at once, you could lose your home.
Some borrowers refinance the loan, obtain another loan or sell their house to pay the balloon.
If you can't, make sure, make very sure, you can sell your house or come up with the dough some other way. Bankrate Inc. All rights reserved.