Mortgage: A Balloon Mortgage May Be The Answer
Mortgage: A Balloon Mortgage May Be The Answer
Balloon mortgage loans are loans that typically offer lower interest rates than what you many times can get with other types of loans. This lower interest rate will be fixed for about 5-7 years. You can therefore save a lot of money during that time. However, at the end of the 5-7 years, you must either refinance the remaining balance, or get a different mortgage loan if you stay in the house. Therefore, if you plan on moving before you would have to refinance or get another loan, then a balloon mortgage may be just what you need.
Even if you are planning on moving, however, there are risks involved. You may not be able to move when you want to if the housing market drops enough while you are living in the house. If it drops so much that you would lose too much money by selling it, you would have to refinance at the end of the term, or get another mortgage if you stay in the house. By that time, interest rates could be a lot higher, and you could be stuck with a very expensive mortgage loan. You may not even be able to afford the new payments. If that is the case, you risk being foreclosed on.
If, however, you need small payments to begin with, but you expect your income to increase a fair amount during the next 5-7 years, a balloon mortgage may be the answer you need since you would start out with smaller payments. Then, by the time you had your increased income, if the interest rate was higher once you refinanced or found another mortgage loan, your increased income, if it was enough, would still make those payments affordable for you. Or, maybe you will get lucky and your payments will stay about the same because if interest rates dropped quite a bit!
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