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Balloon mortgage
pros and cons
The reason you take out a mortgage is
to pay for a home that you do not have
all the finances for. Before
signing on a mortgage, you should
explore all the different types to see
if one fits your needs and wants.
An article released by affordableconcretecutting.com,
titled, “Are Balloon Mortgages
Full of Hot Air?” offers information
that mentions positives and negatives
about balloon mortgages.
Most mortgages
can be attained by anyone. But there
is usually one mortgage that fits someone’s
situation and needs more than others.
Before investing and signing anything,
you should try to find that mortgage.
It may be a balloon mortgage.
“A
balloon mortgage is one where there
is a large, lump sum payment due at
the end of a series of smaller periodic
payments. Most balloon payments are
acquired when refinancing or when one
is expecting cash windfall from something
such as inherited money, a large tax
refund, or an expected dividend.”
Like all other mortgages, a balloon
mortgage has several advantages and
drawbacks.
The primary advantage of a balloon mortgage
is that the required down payment is
usually much lower than that required
from other mortgages.
“Another advantage is that balloon
mortgages generally come with lower
interest payments, which causes little
capital outlay. If you choose this mortgage,
you will be able to have more flexibility
to advance
capital during the mortgage.”
A third benefit of balloon mortgages
is that monthly payments will be much
lower than with other mortgages.
There may also be an option to convert
your balloon mortgage into more smaller
payments if the money (inheritance,
etc.) you were expecting is going to
take a little longer than expected to
come through.
“Another benefit to balloon mortgages
is that the interest rates will not
adjust when interest rates increase
on a national level. Once the rate is
set, it will stay where it is.”
You have heard the advantages, now it
is important to also recognize the disadvantages
of a balloon mortgage. The obvious disadvantage
is that you will have one large lump
sum to pay at the end of the loan.
“Another disadvantage of a balloon
mortgage is that the refinancing costs
could become a larger challenge and
cost much more than expected in the
end. If the interest rates increase
while you are in a balloon payment,
you will end up paying additional interest
costs when wanting to refinance. If
interest rates rise more than five percent
above the balloon interest rate that
you began with, you will have to re-qualify
for a mortgage and have your home reappraised.”
If this scenario happens, it will actually
cost you more money in the end than
you were trying to save.
Due to the constant fluctuation of interest
rates, if you sign a balloon mortgage
at the wrong time, you may have to go
through the process of reapplying for
a mortgage which will cost you even
more money.
Before signing any mortgage, it is important
to know the interest rates and have
as much knowledge as possible about
the loan. Balloon mortgages can be beneficial
but also very dangerous. |
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