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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, 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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