What is a balloon mortgage and what are the benefits of having one? A balloon mortgage is a loan of a short duration that mirrors a traditional mortgage. The difference is that; upon the conclusion of its term, its holder must make a substantial payment to pay off the remaining principal amount. There are some advantages to having this type of mortgage. We will explore what they are.
One attractive feature of a balloon mortgage is that they have shorter sentences that the decades long terms of traditional mortgages. These terms can vary from five to seven years long; or if the borrower chooses, longer terms of up to ten years. At the conclusion of this type of loan, its holder has a few options to choose from. Options such as to pay the rest of the principal off or sell the home. Another option they have is to have a new mortgage agreement drawn up for them.
Another advantage of a balloon mortgage is that the interest rates and monthly payments are typically lower than with other kinds of mortgages. It may also afford the borrower the opportunity to qualify for a larger loan amount. If someone is expecting a financial windfall before the end of the loan term; or they opt to sell the house before their loan term expires, a balloon mortgage could be a perfect choice for them.
An important feature of a balloon mortgage to pledge is that it allows the borrower to re-calculate their mortgage in accordance with current interest rates and pay the newly calculated monthly payment for the rest of the loan's duration. In order to do this however, there are some qualifying conditions he or she must meet. The criteria includes them actually living in the home; not being delinquent in making the payments for at least the prior year and not having any liens on their property.
The pre-eminent feature of a balloon mortgage is that the loan itself does not amortize, but rather utilizes a series of payments and then one huge payoff payment at the very end of its term. A balloon mortgage is very easy to refinance; so if needed at some point in time, a different kind of mortgage with a fifteen to thirty year term can be taken out by the borrower.
One more advantage of a balloon mortgage we would like to mention is that; homes with this kind of a mortgage are particularly easy to sell off. If a potential buyer has a great credit rating they will receive an excellent interest rate on the home. Some people say that a "speedy and bulk repayment is the motto of this loan." If done properly; over the course of time, people that utilize balloon mortgages can acquire a small fortune for themselves. If you are considering this type of a mortgage, make sure you do your research and also speak with mortgage experts. They will fully advise you of all the advantages and disadvantages of doing it this way.