Balloon Mortgages

A lot of people wonder what a balloon mortgage is. A balloon mortgage is like an Adjustable Rate Mortgage the major difference being that the entire balance amount becomes due at the end of a balloon mortgage. The advantage being that the interest rate is not revised for the term of the mortgage. However one needs to do a more thorough examination of the differences between an adjustable rate mortgage and a balloon mortgage before deciding which is more suitable. The balloon mortgage is worked like a fixed rate 30 year mortgage and in most cases the term is fixed for 7 years. So at the end of the 7 years the borrower has to refinance and he may get a higher rate and the current lender may refuse to do a refinance. In case of an adjustable rate mortgage the lender is obliged to do a refinance even if the borrower’s credit rating has gone down.

So the advantages of a balloon mortgage is that the interest rate is not revised during the term of the mortgage however at the end of the term the entire balance becomes due so unless one is expecting to win a jackpot or get an inheritance they will require to look for a refinance and the original lender may not be ready to give the refinance. Also if a borrower’s credit ratings have gone down then to find another mortgage may become a nightmare. Most balloon mortgages are a 7 year balloon mortgage. On the internet there are balloon mortgage calculator and balloon mortgage amortization calculators and one can use these freely if one wants to look at what the installments would be for a balloon mortgage and most importantly what would be due at the end of the term of the mortgage. If one wants to go for balloon mortgage home loans then one should be very sure that the value of the house will not decline and one would be able to sell it and pay the remainder or be able to get a new mortgage for it.

The 7 year balloon mortgage may be higher then the Adjustable Rate mortgage rates by a margin as most 7 year balloon mortgages are worked on as 30 year fixed rate mortgages and the interest rate that is applied by mortgage brokers and loan officers is that of the current 30 year fixed rate mortgage. This is a general rule and may not always hold true. Balloon mortgage loans are only favorable if one is absolutely sure that it is better then an adjustable or a fixed rate mortgage. The reason people go for balloon mortgages is that the installments that one has to pay are less and people expect that their financial positions will improve over the term and they may then be in a better position to take any other type of mortgage and should this not happen for any reason they may sell the place and pay of the balance. One advantage about balloon mortgage is that one may have got a house on a balloon mortgage and is looking for a better place and they hope that towards the end of the balloon mortgage term they will be able to sell the place and pay the remainder of the mortgage and because of the small installments save the down payment and closing costs of getting a better place. So some people may use a balloon mortgage as a temporary shelter till they can save enough to move to a house that they really want. Information about how to get a balloon mortgage form and information about balloon mortgage and balloon mortgage are available with mortgage brokers and loan officers.

So only if one is very sure about what they are doing and have their future plans well thought through only then is it advisable to go with a balloon mortgage or if one buy’s a second home which one plans to sell in the future or make it their first home and sell the first home then going for a balloon mortgage is feasible.