Mortgage Loan: Balloon Mortgage

Mortgage Loan: Balloon Mortgage

Mortgage Loan: Balloon Mortgage

If you are looking for a mortgage loan, do no forget to look into the possibility of getting a balloon mortgage. Although there are some risks associated with a balloon mortgage, there are also many benefits as well. It is important to weigh the risks against the benefits to see if it will be the best for you, but it will depend largely on your situation.

If you are not planning on staying in your house for very long, or you expect your income to increase a good amount over the next 5-7 years, then a balloon mortgage may be right for you because your interest rate starts out lower than what you would normally be able to get if you were not on a balloon type mortgage loan. Your payments would therefore be smaller for the first 5-7 years because your low interest rate would be fixed during that time. After the 5-7 year period however, your payments will most likely increase since the term of the balloon mortgage loan will expire and you will either need to refinance, get a new loan, or move.

How much your payments will increase after the 5-7 year period will depend on interest rates at that moment, and what kind of a deal you are able to get through refinancing, or with the new loan. Chances are however, you won't find an interest rate as good as the one you got with your balloon mortgage loan since those types of loans typically have one of the lowest interest rates, but if you are lucky, maybe interest rates would have dropped a lot and you will end up not paying that much more, or about the same amount as you were before.

On the other hand, however, if interest rates have risen quite a bit, you didn't get as much of an income increase as you were expecting (or maybe your income even decreased), and you can't even sell your house and move because property values dropped so much you would lose too much money by selling, and if, heaven forbid, your credit score lowered as well, you could really be in trouble trying to refinance or find a new loan that you could afford. This would be the worst case scenario because then you would risk foreclosure (losing your house if you were unable to make your payments, or unable to qualify for a new loan for the unpaid balance).

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