The Fannie Mae seven-year balloon mortgage is a fixed-rate mortgage with a term of seven years. The principal and interest are amortized over a longer period (30 years) than the actual term of the mortgage. At the end of the balloon period, you may pay off the outstanding balance with a lump-sum payment or exercise the option to refinance for the remaining term.
The option to refinance is conditional, meaning you have to meet certain conditions (such as a history of timely payments or no second liens on your property). Conditions may include payment of closing costs and a lender fee, as well as no 30-day late payments in the previous 12 months and no other liens on your property.) You must occupy your property at the time of refinancing. You need not re-qualify for this loan when refinancing at the end of seven years as long as the new interest rate is not more than five percent above the current interest rate. The refinance condition is not automatic -- you must exercise the option.
- This mortgage is ideal if you plan to sell or refinance your home within seven years and want a low monthly payment during that time.
- The interest rate you pay on a balloon mortgage is usually lower than a comparable 30-year fixed-rate mortgage.
- The refinance option provides a "safety net" in case a planned relocation doesn't take place or economic conditions prevent you from moving to a larger home