Mortgage is a process where you use your property, like, your house, as a security in order to avail a loan for various kinds of your personal use, such as, renovation of your home, payment of a debt, and many more. You may want to check out Continue Reading for more. In most of the cases, the term mortgage is associated with providing your real estate property, such as your house, as a security against a loan. In some cases, the land that you own may also be kept as a mortgage. Mortgage is the common method by which individuals and business can purchase residential or commercial properties without having to pay the full value for the property immediately. The practice of mortgaging properties is followed in many countries, where home purchases are generally funded through mortgage.
Balloon mortgages are quite popular amongst many home buyers. It has a shorter time period, having a term of five to seven years, but with the payment is based on a term of 30 years. The interest rate in a balloon mortgage is lower than the usual mortgage, and it has been found that, it is easier to avail compared to the traditional 30 year fixed mortgage. However, there is a disadvantage in this type of mortgage, where you would need to fully pay off the balance outstanding at the end of the mortgage term. This condition may put you in a situation where you would need to go for re-financing against the real estate property that you have purchased, sell your home, or convert the existing balloon mortgage into the traditional one at the prevailing rate of interest. Balloon mortgage may not suit all. It is ideal for those people who have need for loans for a short period of time. There are several loan schemes that are available, which would need a balloon payment at a specified period of time.
How does it work?
If you avail balloon mortgage, you will need to pay a fixed amount for a defined period of time, may be three to seven years. After that period is over, you would need to pay the full outstanding in one go. The payments that you make against this type of mortgage are less than necessary for amortizing, and this puts you in the advantage in making lower than normal payments. This type of mortgage becomes attractive to people, because of its lower payment, and this lower payment is availed by people who could be looking for a larger house, for which they do not have enough money.
The balloon mortgage is available for a definite term, after which you are required to pay back the balance in a lump sum. The condition is that, the outstanding has to be paid off fully after the term is over. Since there is no other way, you have three options with you. You may like to go in for re-financing and a conversion of the balloon mortgage into the traditional mortgage that we know. This option is taken by most of the people. The second option is to sell your house before the balloon mortgage term gets over. In taking up the third option, you would be paying larger sum as installments each month, being more than what has been stipulated in the terms of payment. In this way you would be paying off the complete mortgage dues at the end of the period, or you will have an affordable outstanding when the balloon mortgage term gets over.