How Does A Balloon Mortgage Work

How Does A Balloon Mortgage Work



How Does a​ Balloon Mortgage Work?
Finally being able to​ buy your house because you​ got the​ mortgage you​ wanted is​ an​ exciting thing .​
Many mortgage possibilities are available,​ but a​ balloon mortgage may be the​ thing that you​ need to​ get moved in​ .​
Here are some things you​ need to​ know about balloon mortgages that will enable you​ to​ decide if​ this type of​ mortgage can help you.
A balloon mortgage is​ taken out for a​ 30-year period,​ like an​ ordinary mortgage,​ but paid back much sooner .​
These are often paid back in​ 5 or​ 7 years,​ but recently a​ 15-year option has become rather popular .​
At the​ end of​ this period of​ time,​ the​ mortgage becomes fully due - it​ must be paid off .​
Since most people cannot pay it​ off because the​ balance is​ still quite large,​ there is​ a​ guaranteed option of​ refinancing - at​ the​ market rate at​ the​ time .​
This makes a​ balloon mortgage in​ some ways both like a​ fixed rate mortgage and an​ adjustable rate mortgage (ARM) .​
It is​ like a​ fixed rate mortgage in​ that it​ has a​ fixed payment over a​ certain period of​ time .​
On the​ other hand,​ a​ balloon mortgage is​ like an​ ARM because the​ guaranteed level of​ interest goes to​ an​ unknown rate - to​ whatever the​ interest rate is​ when you​ refinance .​
The monthly payment for a​ balloon mortgage is​ like the​ payment for a​ fixed rate mortgage because it​ is​ based on​ the​ whole period of​ the​ loan - for 30 years .​
All balloon mortgages are calculated on​ a​ 30-year time frame .​
The difference being that the​ full payment is​ due earlier .​
The advantage of​ getting a​ balloon mortgage is​ that it​ enables you​ to​ get lower than traditional mortgage costs .​
Your payment will usually be a​ little less than if​ you​ had a​ regular mortgage .​
This also means two things,​ though .​
First,​ it​ means that you​ are not paying much more than interest in​ the​ brief time span of​ the​ loan; and this also means that you​ really are not building up much equity on​ the​ home during that time .​
At the​ end of​ the​ specified time period,​ whether 5,​ 7,​ 15 years,​ or​ some other arrangement,​ you​ must pay off the​ balance of​ the​ mortgage .​
a​ balloon mortgage will be of​ more value to​ you​ if​ you​ are intending to​ sell the​ house before the​ balloon payment is​ due,​ or,​ plan to​ refinance .​
Refinancing,​ of​ course,​ means that you​ are forced to​ take a​ risk on​ whatever the​ new interest rates are at​ the​ time – could be good or​ bad .​
There will be,​ in​ the​ initial contract,​ terms under which such a​ contract can be refinanced .​
This may be,​ however,​ non-negotiable .​
Which means,​ simply,​ that you​ are better off refinancing through another lending agency - in​ most cases .​
A balloon mortgage works well with someone who knows that they may not be staying in​ an​ area for a​ long period of​ time .​
Another possibility is​ if​ you​ know you​ can take the​ balance of​ your lower payment,​ reinvest it​ in​ higher interest yielding products,​ and then pay off the​ balloon mortgage at​ the​ end of​ the​ term.




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