Balloon Mortgages Explained

Balloon Mortgages Explained



Balloon Mortgages Explained
A balloon mortgage is​ a​ loan that is​ provided for a​ short period of​ time for a​ set amount of​ money .​
Balloon mortgages will often involve periodic payments that are made at​ a​ fixed interest rate .​
During this period,​ the​ loan may not be amortized .​
The balance of​ the​ loan has to​ be paid in​ full at​ a​ specific time .​
Another feature of​ balloon mortgages is​ that they will combine many of​ the​ features seen in​ adjustable rate mortgages and fixed mortgages .​
The interest rate will remain fixed for a​ certain period of​ time,​ which may be from 5 to​ 7 years .​
The payments will be based on​ an​ amortization cycle that lasts 30 years .​
If homeowners can't pay the​ balance by the​ end of​ the​ term,​ the​ lender will decide how the​ payments will be made .​
The sum is​ usually converted into a​ fixed rate mortgage.
Advantages?
A balloon mortgage can be good because it​ offers an​ interest rate that is​ much lower than standard 30-year mortgages .​
If you​ are buying a​ larger home,​ a​ balloon mortgage can help you​ .​
Larger homes tend to​ have interest rates that are high,​ and this can make them difficult to​ pay off if​ you​ don't have a​ large income .​
Balloon mortgages can make things easier .​
They are also good for people who plan on​ refinancing the​ home before the​ term ends .​
Despite this,​ balloon mortgages can be much more complex than standard mortgages .​
Some homeowners who use them end up running into problems .​
You will need to​ make sure you​ have solid documents before signing up for a​ balloon mortgage .​
You will want to​ make sure you​ choose the​ right lender and read all contracts carefully for hidden fees or​ other terms .​
Balloon mortgages can be risky for people who don't understand them .​
Extra Charges For Balloon Mortgages
One problem that customers run into with these mortgages is​ prepayment penalties .​
These penalties will often be placed on​ people who choose to​ pay off the​ mortgage early .​
If you​ refinance your existing mortgage or​ sell the​ home,​ this can lead to​ prepayment penalties .​
The problem with these penalties is​ that they greatly increase the​ chances that your home could become foreclosed .​
Mortgages that have balloon payments are highly susceptible to​ foreclosure.
Pre Payment Penalties
The cost of​ prepayment penalties can be large .​
They are usually calculated as​ a​ percentage of​ the​ total balance owed .​
This could be as​ high as​ 12% and many homeowners have found themselves paying thousands of​ dollars more than they expected .​
If you​ choose to​ get a​ balloon mortgage you​ should make sure there are no prepayment penalties .​
If you​ get into a​ situation where you​ can't afford the​ home,​ prepayment penalties can keep you​ from being able to​ refinance the​ home in​ order to​ get out of​ debt .​
These mortgages can be risky,​ and should only be used by those who fully understand the​ risks involved.
Short Term Mortgage – Long Term Problems
A mortgage is​ a​ serious financial endeavor that you​ should take seriously .​
They involve large amounts of​ money that most people simply don't have on​ hand .​
If you​ get into a​ situation where you​ can't make your payments,​ you​ could end up losing your home and your credit could be ruined .​
Many people have made the​ mistake of​ getting involved with balloon mortgage without doing their research .​
They chose not to​ read the​ fine print on​ the​ applications .​
They often end up in​ situations that can haunt them for the​ rest of​ their lives.
While balloon mortgages may have low interest rates at​ first,​ you​ should have a​ plan to​ make your monthly payments after the​ first term ends .​
This can keep you​ from defaulting on​ your payments.




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