| Balloon
Mortgages - What they are and how they work.
A Balloon Mortgage is just like a 30 year fixed mortgage, however, after
5-7 years of monthly payments (depending on how long your balloon mortgage
lasts) you must repay the entire loan back in full. If you are not able
to pay the loan off you can refinance and get another loan, sell your
house, or risk foreclosure. Home buyers generally don’t pull out
a balloon Mortgage unless they plan on selling their house before the
loan matures. There are advantages and disadvantages to the balloon mortgage.
ADVANTAGES:
Easier To Qualify For: Since balloon mortgages are shorter term loans
lenders take much less risk; therefore, it is much easier to qualify for
such a loan.
Can Receive A Larger Loan: Because the lender is taking less risk by giving
you a balloon loan you can get a larger loan. So, if you don’t quite
qualify for the loan to get your dream home this is an option for you.
Lower Interest Rate: With balloon mortgages you will get a lower interest
rate than a thirty-year loan. The shorter balloon mortgages (5 year policies)
get lower interest rates than the 7-year loans.
DISADVANTAGES:
Once Policy Ends You Are Forced to Refinance, Sell, Pay off the mortgage,
or Forclose: The mortgage payments last 5-7 years, so if you don’t
have the money to repay the rest of the loan you will have to refinance,
sell, pay off the loan, or forclose.
Your Interest Rate May Rise: Once the term ends on your loan, if you have
not paid it off, you may have to refinance. If interest rates have risen
you will be looking at a higher interest rate for the next 5-7 years.
TWO TYPES OF BALLOON MORTGAGES:
5-Year: This loan is basically what is says. You have a fixed rate and
monthly payment for 5 years and once the five years is up you must pay
off the rest of the loan or get another one.
7-Year: Same thing again, but the interest rate and monthly payment lasts
for 7 years. Once the loan is up you must pay it back or get another one.
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