{"id":1795,"date":"2022-06-19T02:41:08","date_gmt":"2022-06-19T02:41:08","guid":{"rendered":"https:\/\/blog.ark7.com\/?p=1795"},"modified":"2023-05-19T03:27:15","modified_gmt":"2023-05-19T03:27:15","slug":"guide-to-alternative-loans-amortization","status":"publish","type":"post","link":"https:\/\/ark7.com\/blog\/learn\/in-depth\/loans\/guide-to-alternative-loans-amortization\/","title":{"rendered":"Guide to Alternative Loans & Amortization"},"content":{"rendered":"
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Balloon loans are mortgages that operate on a lump-sum payment schedule, meaning at some point in your loan\u2019s life\u2014typically at the end\u2014you\u2019re required to pay the remainder of the balance at once.<\/span><\/p>\n

You might only pay interest for the life of the loan, followed by one large principal payment at the end, or a combo of interest and principal with a smaller lump-sum payment due at the end, depending on your lender.<\/span><\/p>\n

Balloon loan monthly payments are low. You can also use the leftover money for other things, including building credit or savings, before your lump-sum payment is due. But keep an eye out for the balloon part!<\/span><\/p>\n

Interest-only mortgages<\/b><\/h3>\n

Interest-only mortgages are comparable to certain balloon loans because they allow borrowers to only pay their loan\u2019s interest for their monthly payment instead of the interest and principal.<\/span><\/p>\n

But, unlike a balloon loan, an interest-only mortgage only allows the borrower to take advantage of these interest-only payments for a certain number of years. After that, the balance starts to amortize, significantly raising the monthly payment.<\/span><\/p>\n

The majority of interest-only loans are ARMs, which means the interest rate is adjusted several times per year, based on current rates. This causes the monthly payments to fluctuate, which can make it harder to budget.<\/span><\/p>\n

There are also interest-only fixed-rate mortgages, but this type of mortgage is extremely rare.<\/span><\/p>\n

Amortized vs. Interest-only Payment Schedules<\/b><\/h2>\n

Interest-only mortgages can be used in the following situations:<\/span><\/p>\n