There are a number of loan options available for consumers who are looking to purchase a home. If your financial situation is a little different in comparison to the average person, the balloon payment mortgage loans may be of interest. It is important to take a closer look at the advantages and possible limitations offered with this type of lump sum depending on personal needs.
This loan works by acting as a long term financing solution for the first few months or years, but is actually a short term option. This is because the buyer will be required to pay the lump sum and interest as if it were a 30 year fixed rate bond for a specified period and thereafter the remaining balance will need to be settled. If this sounds like an option for your financial needs, consider the features it can offer.
Taking a look at the standard 30 year fixed rate mortgage and adjustable rate loans, the payments are made for the agreed upon time period until the outstanding sum is fully paid off. This is referred to as amortization because the payments are made over the life of the loan. This can be afforded by most consumers; however, there are unusual circumstances where the individual or couple may be looking for terms and conditions that are a little bit different.
A balloon mortgage offers the standard repayments for the first few years and thereafter the entire amount will have to be settled. For large sums of money it is not possible to satisfy the payment in full for the initial term. This means that consumers will be responsible to pay an amount that is almost the same as the original sum that was taken out.
There are a number of consequences associated with such investments. If you do not have the finances available to settle the outstanding debts at the end of the term, there is the option to refinance or to reset the bond. If you are unable to access these choices, one may be subject to a foreclosure.
Although a large number of people will avoid this type of loan, there are beneficial features that are considered most favorable. These include the reduced interest rates in comparison to a standard 30 year bond and the opportunity to reset the mortgage. It is also easier to qualify for and may involve relatively lower costs upon closing.
Possible limitation of seeking such investment options includes the responsibility of having to settle the large loan amount at the end of the term especially if a reset or refinance option is not available. There are not many financial lenders that will offer this type of bond to consumers. You may also be expected to pay higher interest rates where the loan has been refinanced.
These balloon payment mortgage loans may prove most favorable for consumers who may be expecting a large financial sum to come into their pockets by the end of the term – so opting for a refinance mortgage would prove beneficial in this instance. It also allows for a reset or refinances with desirable interest rates. Although it is not the right choice for all, it can be suited to those with unique financial circumstances.