There are many different kinds of mortgage products out there, giving you plenty of options to pick from when purchasing a home. However, you may be interested in one type of mortgage that has a balloon payment. Here is what you need to know about this type of mortgage before you decide to move forward.
How Traditional Mortgages Work
When you get a mortgage that has a fixed interest rate over 15 or 30 years, the monthly payment is low and predictable. You slowly make identical monthly payments towards your home, and by the end of the term you are the owner of your home. Many people prefer a fixed rate mortgage because it allows people to make these gradual payments that they can afford, while still maintaining an interest rate that makes the loan affordable.
How Balloon Payments Work
A lender may give you the option to modify your mortgage by adding a balloon payment at the end. If your loan has a balloon payment, you pay only the interest up front for a specific term of time. This means that your monthly payments at the beginning of the mortgage are going to be lower because you're not paying any payments towards the principal of the loan. You're just paying interest, typically at a lower interest rate than you would pay with a conventional mortgage because the lender is taking on less risk.
When the term of the loan ends, you'll then have to make the balloon payment. This is when all of the principal is due at once. By this point, you hopefully have enough money saved up pay the balloon payment in full. The borrower also has the option to take out a second loan to cover the balloon payment and pay off the home in a more traditional way.
Why Would You Use A Balloon Mortgage?
Some people prefer to use a balloon payment when they know they won't be in the home that long, as it allows them to spend less each month on their mortgage, and the sale of the home eventually pays off the loan. Other people may expect to make more in their career later in life and be able to afford that balloon payment. You may know that you are receiving an inheritance and want to buy a home now and pay off the balloon payment later when you have inherited the money. It all depends on your situation and what you foresee in the future.
Contact a company that offers real estate loan lending services to learn more.
Hello, my name is Sigmond Jenner. Welcome. I am here to talk to you all about acquiring personal loans for emergency expenses. Although everyone should have an emergency fund in a savings account, there are many barriers to achieving that goal. In the meantime, you can look into acquiring a loan to cover emergency expenses that may come up. You should be prepared ahead of time, so you can act fast when unexpected financial expenses arise. I will provide information you can use to prepare yourself for this process. Please come back again anytime to learn more about acquiring loans as needed.