If you’re in the process of buying a home, you may hear about something called a balloon mortgage payment.

This is a term used to describe a mortgage payment plan that typically has one larger-than-usual payment at the end of the loan term, according to the Consumer Financial Protection Bureau. For the years leading up to the end of the loan, your monthly payments will be lower than other mortgage payment plans.

Texas Republic Bank is here to answer all your questions about the financial side of purchasing a home. In this post, we’ll give you the things you need to know about balloon mortgage payments so you can make the best decisions for your future.

1. Your “balloon” payment will be larger than an average monthly payment

The most important thing to understand is that you’re going to owe a large sum of money at the end of your loan, called a balloon payment. Depending on the terms of your mortgage, your balloon payment could be tens of thousands of dollars more than your average monthly payments. Some balloon mortgages even charge “interest only” monthly payments, so you’ll owe the entire loan balance in the end in exchange for very low monthly payments up until that point.

2. Typically, balloon payments can’t be paired with a qualified mortgage loan

If you have a qualified mortgage, you cannot opt for a balloon payment, according to the Consumer Financial Protection Bureau.

3. Balloon mortgage plans are usually just a few years

Balloon mortgage terms can be as short as two years or as long as about five or seven years. This makes a balloon mortgage appealing to people who don’t intend to stay in their home for a long time, or who plan to refinance soon.

4. It’s important to think about your future before getting a balloon mortgage

You’re going to be owing a lot of money down the road, so you’ll want to plan for that accordingly. Balloon mortgage plans are convenient if you want to keep your monthly expenses manageable as you save up money for your big final payment. However, this does require some proper planning and financial discipline to ensure you have the payment in full at the end of the loan term.

5. You do have an option to refinance rather than paying in full

Many people choose to simply refinance in the end and pay the balloon payment with the proceeds of a new loan, sometimes by the same lender, according to Forbes. You may even be able to secure a lower interest rate on a new loan if rates go down.

A balloon mortgage payment is kind of like seeing the bill after you enjoy a big meal at a fancy restaurant. It can easily catch people by surprise, but if you have the right team of financial professionals on your side, you can successfully pay off your home in a few short years.

Click here to contact Texas Republic Bank to discuss your mortgage options.