Title:
Balloon Mortgages
Explained
Word Count:
618
Summary:
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.
Keywords:
loans, mortgages,
ballon, credit, home, house, interest, years, payments, short, cost
Article Body:
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.