One of the first things you learn as you are shopping for a mortgage is that their are a wide variety of them available. We all have to deal with unique financial situations and lenders realize this. That’s why they offer so many types of mortgages, each designed to meet different needs.
One unique type of loan is the balloon mortgage, or balloon payment mortgage. These loans have a lot in common with your average fixed-rate loan but they also have unique attributes that you may end up loving or hating. It all depends on how quickly you can make money and make payments.
What Exactly is a Balloon Mortgage?
A balloon mortgage is unique in that you don’t necessarily pay it off in regular payments like you would an average loan. Instead you make payments for a set period of time and then at the end you make one large payment covering everything left outstanding.
If this were all there was to these loans then they wouldn’t be appealing, but there are a range of positives that make them attractive.
The main draw of balloon mortgages is that they can end up much cheaper than other fixed-rate loans since they require less money down upfront and lower interest rates. And since these mortgages tend to be on the short side, this all adds up to less money spent overall if you can pay it off in the time agreed.
The typical lifespan of a balloon mortgage is around 5 or 7 years. That means that if you take out one of these loans you will have to raise the entire value of the loan within the set time period. As you can imagine this means that balloon mortgages aren’t for everyone.
Are there Risks Involved?
Many people never hear about balloon mortgage and the reason is the risk involved. If your time runs out and you don’t have the money you will be in trouble. In that case you may have to put your home up for sale to cover the outstanding debt.
With this being said things aren’t necessarily over once the clock runs out and the money isn’t there. Contrary to popular opinion lenders aren’t looking to run people out of their homes, they just want to get their money back with interest.
As such it is possible to get balloon mortgages refinanced. The downside of this process is that you will most likely get a higher rate once you refinance your loans but that’s usually a small price to pay for keeping the home you live in.
While you can get balloon mortgages refinanced in general it’s best to avoid these loans if you think you’ll require refinancing when the money is due. In this case refinancing should be seen as a last resort, not an essential part of the loan process.
Who is a Balloon Mortgage Right For?
This type of loan is a prime example of how unique mortgages can get. Many people hear about these loans and have trouble imagining who would take out one of them. But there are people who learn about this option and leap at the chance. Not every loan is right for every person and that’s OK.
A balloon mortgage might be right for if you want to get a loan with a low interest rate but don’t have much money to put down right now. The main consideration here is what you think you’ll be able to pay off in 7 years.
If you don’t have much cash now but you expect to have a healthy and steady cash flow for the years to come, then a balloon mortgage may be a way to save a lot of money by the end of the loan. It might be a good idea for you to look into this type of loan option if this description fits you. Just remember to be extra cautious.
The truth of the matter is that every type of loan involves some sort of risk, but this type in particular carries an additional level of risk. If you are confident that you can pay off your entire loan within 7 years then a balloon payment mortgage might be just the right choice. It’s not for everyone but if it’s right for you it can save you some serious cash.
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Mortgage Capital Associates (MCA)
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Mortgage Capital Associates has been in the mortgage loan business since 1982 serving customers in 31 states and our mission has been to fulfill the home buyer’s dreams of ownership.
With 30+ years of mortgage lending experience, our reputation is based on fast delivery of industry best rates and closing your loans without any surprises. Our Mortgage Loan Consultants are extremely knowledgeable and able to tailor a mortgage to meet the individual needs of our customers. They use the latest comparative analysis software to research and compare a wide variety of loan programs and best option to meet your individual need and financial goals. Our state of the art loan software streamlines the processing of your loan, ensuring quick approvals and fast closings for you.
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