Balloon Loan for an Apartment 2026 | What It Is, When to Use It, and How It Works | חדשות נדל"ן | מרכז הנכסים
What is a Balloon Loan?
A balloon loan (Balloon Loan) is a loan where you pay only interest (or interest + partial principal) throughout the loan period, and at the end — you repay the entire principal in one large payment (the "balloon").
In the Israeli real estate market, a balloon loan is often used as a bridge: customers buying a new apartment before selling their old one take a balloon loan to cover the gap — and repay it when the old apartment is sold.
How a Balloon Loan Works — Numerical Example
Suppose you are buying an apartment for 2,200,000 ₪ and you have 700,000 ₪ in equity. Your old apartment is worth 1,500,000 ₪ but has not yet been sold.
- Take a balloon loan: 800,000 ₪ for 18 months, interest 6.5% per year
- Monthly payment: ~4,333 ₪ (interest only)
- At the end of 18 months: repay 800,000 ₪ from the sale of the old apartment
- Total cost: ~78,000 ₪ interest for the period
In contrast to a regular mortgage on 800,000 ₪ for 20 years: monthly payment ~6,200 ₪. The balloon loan saves 1,867 ₪ per month during the transition period.
When is a Balloon Loan Worth It?
- Homebuyers buying before selling — the classic situation
- Investors expecting to sell an existing property within 1-3 years
- Contractors and developers financing construction before obtaining bank financing
- New immigrants waiting for funds from abroad
When is a Balloon Loan Risky?
- When there is no clear plan for repaying the balloon — if the old apartment does not sell, a serious problem arises
- When the real estate market declines and the price of the old apartment is lower than expected
- When interest rates change and rise — balloon loans with variable rates can be surprising
Balloon Loan vs. Regular Mortgage
| Parameter | Balloon Loan | Regular Mortgage |
|---|---|---|
| Monthly Payment | Low (interest only) | High (principal + interest) |
| Risk | High at the end of the period | Low — spread over years |
| Flexibility | High — suitable for transition | Low |
| Total Cost | Low for the short term | High for the long term |
What Our Brokers Ask the Client Before a Balloon Loan
- What is the realistic timeline for selling the old apartment?
- Do you have additional savings to cover the balloon if the sale is delayed?
- What happens if the old apartment sells for 10% less than expected?
If there are no good answers to these three questions — a balloon loan may not be suitable for you.
Looking for professional advice on financing for an apartment in Ma'ale Adumim or Jerusalem? Contact the Property Center — our agents work with experienced mortgage advisors.