A balloon mortgage is nothing but a loan over a shorter period of time for a given amount of money. Balloon mortgage can be defined in a broader sense as a mortgage which involves periodic payments and fixed interest rates that do not fully amortize the loan. The balance amount has to be paid as a lump at a predetermined date.
Balloon mortgages combine the dual features of the adjustable rate mortgages and fixed rate mortgages and come as low interest short term loans. The interest rates and periodic payments are fixed for a short period of time (generally 5 - 7 years) with actual payments calculated on a 30 year amortization table. The balance amount that could not be paid at the end of the initial term can be paid as a lump sum or has to be settled in any other way as the lender decides. This amount is also settled after converting it into a fixed rate mortgage in many cases.
Benefits of a Balloon Mortgage The major benefit of going for a balloon mortgage is a lower interest rate as compared to a fixed rate mortgage over 30 years. Generally balloon mortgages can prove helpful in case you are buying a bigger home. Going for a balloon mortgage is a very good option for those who are sure that they would require the mortgage only for a given period of time or have a plan to refinance before the initial term gets over.
Compared to other mortgage loan types, a balloon mortgage can lead to some complications and hence it becomes inevitable to have well defined documents before entering into a deal. Also choosing the right mortgage vendor and scanning contracts for hidden costs and risk factors, helps.
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A balloon mortgage is nothing but a loan over a shorter period of time for a given amount of money. Balloon mortgage can be defined in a broader sense as a mortgage which involves periodic payments and fixed interest rates that do not fully amortize the loan. The balance amount has to be paid as a lump at a predetermined date.
Balloon mortgages combine the dual features of the adjustable rate mortgages and fixed rate mortgages and come as low interest short term loans. The interest rates and periodic payments are fixed for a short period of time (generally 5 - 7 years) with actual payments calculated on a 30 year amortization table. The balance amount that could not be paid at the end of the initial term can be paid as a lump sum or has to be settled in any other way as the lender decides. This amount is also settled after converting it into a fixed rate mortgage in many cases.
Benefits of a Balloon Mortgage
The major benefit of going for a balloon mortgage is a lower interest rate as compared to a fixed rate mortgage over 30 years. Generally balloon mortgages can prove helpful in case you are buying a bigger home. Going for a balloon mortgage is a very good option for those who are sure that they would require the mortgage only for a given period of time or have a plan to refinance before the initial term gets over.
Compared to other mortgage loan types, a balloon mortgage can lead to some complications and hence it becomes inevitable to have well defined documents before entering into a deal. Also choosing the right mortgage vendor and scanning contracts for hidden costs and risk factors, helps.
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