Balloon Or Reset Mortgage Loans Understanding The Basics

Balloon Or Reset Mortgage Loans Understanding The Basics

Balloon Or Reset Mortgage Loans - Understanding the​ Basics
A balloon mortgage,​ also called a​ reset mortgage,​ offers lower interest rates with the​ option in​ 5 or​ 7 years to​ pay off the​ balance or​ resent the​ loan .​
Considered more risky than an​ ARM since interest rates can jump significantly,​ it​ is​ a​ valid option for those expecting to​ move or​ interest rates to​ drop.
Balloon Mortgage Features
Balloon mortgages are based on​ a​ 30 year amortization schedule,​ but you​ only pay those payments for 5 or​ 7 years depending on​ your loan’s terms .​
At the​ end of​ that period,​ you​ are required to​ make a​ balloon payment for the​ rest of​ the​ principal or​ resent the​ mortgage at​ current interest rates .​
Some financing companies also offer the​ option of​ refinancing the​ home loan.
With its unique interest rate structure,​ you​ can qualify to​ borrow more than a​ with a​ fixed rate mortgage .​
Balloon mortgages also have interest rates lower than a​ traditional home loan.
Balloon Mortgage Numbers
Balloon mortgages,​ like ARMs,​ use numbers to​ describe terms .​
The first number is​ the​ number of​ years until you​ reset the​ loan or​ make the​ balloon payment .​
The second number equals the​ rest of​ the​ loan term .​
Together both numbers equal the​ loan’s amortization schedule.
So a​ 7/23 mortgage means that you​ have 7 years until the​ balloon payment is​ due,​ 23 year’s worth of​ principal .​
Adding the​ two numbers together,​ your loan is​ amortized for 30 years.
Reset Requirements
In order to​ reset your loan,​ you​ have to​ qualify by still occupying the​ home,​ having no liens against the​ property,​ and having made on​ time monthly payments for the​ last year .​
If you​ don’t qualify to​ reset the​ mortgage,​ you​ may be able to​ still refinance the​ loan.
Balloon Mortgage Considerations
Balloon mortgages don’t have the​ fluctuating interest rates of​ an​ ARM,​ but they don’t have the​ caps to​ safeguard against extremely high future rates .​
You may also find that due to​ a​ reverse in​ your financial situation you​ many not qualify to​ reset or​ refinance your home,​ and have to​ sell it​ to​ meet the​ balloon payment .​
In the​ end you​ are trading security of​ a​ fixed rate for lower interest payments.

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