Title:
Balloon Home
Loans – Be Careful
Word Count:
404
Summary:
In this modern
economy, lenders provide loans tailored to just about any situation. Balloon
loans are one such loan, but carry a serious downside if you’re not careful.
Keywords:
jumbo loans,
balloon loans, interest rates, mortgage, home loans,
Article Body:
In this modern
economy, lenders provide loans tailored to just about any situation. Balloon
loans are one such loan, but carry a serious downside if you’re not careful.
Balloon Loans
A balloon loan has nothing to do with hot air or floating around the world in
80 days. Fail to plan very carefully when using one of these loans, however,
and your financial world will definitely go down in flame like the Hindenburg.
A balloon loan is a mortgage with a fixed interest rate for a set period of
years. Unlike traditional fixed rate home loans, the interest rates on balloon
loans are nearly as low as those found on adjustable rate mortgages. The
problem with balloon loans, however, is the term.
While balloon loans provide a low fixed interest rate for a set period of
years, those years are not in abundance. Instead of a fifteen or thirty year
repayment term, a balloon loan typically has a term of seven to ten years,
depending upon what the lender was willing to give you. At the end of the term,
you must repay the balloon loan in full. Yes, in full. Let’s take a look at how
this can play out.
In 2005, you find a home you love but can’t qualify for a loan. You are so
engrossed with the loan that you eventually locate a lender willing to write
you a balloon loan. The loan is for $400,000 and has a 7 year term. At the end
of the seven years, you’ve paid the loan down by $50,000, but still owe
$350,000. Somehow and someway, you must come up with that $350,000 to pay off
the loan. If you don’t, the lender will foreclose on the home.
Every borrower that goes with a balloon loan fully intends to refinance the
property before the balloon blows. While this makes sense, you have to keep in
mind that refinancing is no sure thing. Maybe you can, but maybe you can’t.
Also, we are experiencing some of the lowest loan rates every seen. Chances are
very strong that in seven years, rates are going to be much higher. Are you
really going to be able to afford those rates?
Balloon home loans are all about seeing the future. In essence, you are pulling
out the tea leaves and betting on rates in 2012 or so. If you get it wrong,
your financial life can become a nightmare.