subject: Is Balloon Mortgage The Best Home Loan For You [print this page] Home buyers should carefully consider their options before purchasing a house. Aside from choosing the best house, you must also find the right financing. Getting the best mortgage will allow you to easily buy your dream house.
One of the options available for you is a balloon mortgage. Some homeowners get more benefits from this financing option compared to other mortgage loans. However, you have to remember that all types of mortgages have drawbacks. You need to carefully study each option before you proceed with your application.
The Basics of Balloon Mortgage
Balloon type mortgage offers low first monthly payments. It can be considered as a hybrid between variable mortgages and fixed rate mortgages. Basically, the rates that you have to pay for the first months are stable. But once you reach the agreed period, the rates will be adjusted accordingly.
The low payments for the first months make this type of mortgage extremely popular for some homeowners. However, you need to remember that the low payments have limited time frame. If the agreed term for the low payments expires, the balloon payment has to be made. It means you need to pay the existing balance of the loan.
This is the biggest drawback of the loan. You might not be able to pay the entire balance because the amount that you need to settle could be staggering.
When You Should Consider Getting a Balloon Mortgage
Obviously, balloon mortgage may not be for everyone. This loan is best if you are planning to sell the home within three years. The low initial payments will work to your advantage. This type of mortgage is ideal also if you know that you will have a higher income later.
If you decide to get a balloon mortgage, then you should prepare the important documents needed by the lender. Take note that the rates of balloon mortgage loan vary from lender to lender. You need to carefully choose an offer to make sure that you are getting the best deal.
The process of application for balloon mortgage would be similar to the processes involved in other conventional mortgages. For those who are familiar with mortgage applications, getting a balloon mortgage therefore would be easier.
Before you sign the mortgage contract, you need to know the details of the loan by reviewing its terms and provisions. You should know how long you have to pay the low monthly dues. In most cases, the low monthly payments could last up to seven months. Aside from this you need to know when the balloon payment will become due so you can adequately prepare for it.
Some borrowers can pay the balloon payment by borrowing from other lenders. Unfortunately, not all lenders allow this option. That is why you need to understand the terms of the loan so you can avoid future problems.
Balloon mortgage is an attractive option. However, it is also quite risky for some home buyers. To avoid problems, you need to weigh the advantages and drawbacks of balloon mortgages.
