Balloon mortgages have a bad reputation these days; however, when used properly they can be an excellent short-term fix to a financial need. Here is how you can use a balloon mortgage to your advantage. Balloon loans are a short-term mortgage that provides very low monthly payments and low interest rates for a specified period of time. At the end of the specified period of time the balance of the loan is due in full. This means you will have to refinance or pay off the entire loan balance. Most mortgages of this type come with terms ranging from five to seven years. These loans are repaid using an amortization schedule based on 30 years of repayment; while this results in a much lower payment, you will be required to pay more when the balloon payment comes due. Balloon mortgages are ideal for real estate investors or those trying to sell a property when they have already purchased their new one. There is risk involved with this type of mortgage; if you are unable to sell or refinance the mortgage when the balloon payment is due you could lose your home. Conversion/Reset Options If you are considering a balloon mortgage there are ways to minimize your risk. Conversion and reset options allow you to change the terms of your mortgage when the balloon payment is due. Using this option could result in higher interest rates and finance charges. Balloon mortgages are ideal for homeowners that: Plan on selling their properties when the balloon payment is due and need low monthly payments. Expect a large increase in their income and will be able to pay off the balloon payment when it becomes due. Avoid Using a Balloon Mortgage: If you are planning on staying in your home and will not be able to refinance or pay off the balloon payment when it becomes due. If you do now want the risk associated with rising interest rates that could raise your monthly payment significantly when you are forced to refinance the loan. To learn more about your mortgage options, including how to avoid common mistakes, register for a free mortgage guidebook. |
