Types of Home Mortgages: Balloon Home Loan
An Overview of the Balloon Home Loan
A balloon home loan is a short-term loan based on 30-year
fixed mortgage rates, but with a huge payoff of the remaining
principal at the end of the short term (usually 5 to 7 years).
For instance, if you have a balloon mortgage of $200,000
and you have paid down $25,000 of this loan by the time
your term is up, you will owe $175,000 in one lump payment.
Other Advantages of the Balloon Home Loan
The balloon home loan has some advantages, despite that
scary sum at the end of the term. While the balloon is very
much like an ARM in that the payments are steady throughout
the early term, the balloon has the advantage of allowing
the buyer to refinance when the balloon payment comes due.
Other Provisions Associated with the Balloon Home Loan
In fact, some balloon programs have a provision built into
the contract early on so the borrower doesn’t have
to go shopping for a loan and the mortgage company doesn’t
have to refigure anything but the interest based on the
new going rate. These conversion mortgages are called 7/23
Convertible or the 5/25 Convertible, with the first number
in the series being the initial monthly payment period based
on the 30-year mortgage, and the last number being the balloon
refinancing period. These loans seem even more like an ARM
loan, except that the increase in payments and interest
at the end of the initial loan period is not decided upon
until the refinancing point.
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