Today, you can get a loan for almost anything, whether you need money for a short time or a long time. A balloon loan also has a specific goal, and it might be what you're looking for if you want something with a shorter term than a longer one. Here are a few ways that a loan with a balloon payment could help you.
Whether it's a first or second mortgage, a balloon loan is always set up for 30 years. This is done so that there is a way to figure out how much to pay. Your payments will always be the right amount for the loan to be paid off in 30 years. Loans with balloon payments are then given a due date, which could be in 5 years, 7 years, or even 15 years.
Most mortgages with a balloon payment have a fixed rate. The interest rate on a balloon mortgage is also a bit lower, which lowers your monthly payments and saves you even more. When you refinance, there are usually no limits on the interest rate, like there might be with a 30-year ARM. This means that you will be refinanced at the current rate. Refinancing, on the other hand, is easier, and if it's in your contract, you won't have to get requalified or have the property reassessed, and fees are usually low.
When a mortgage with a balloon payment comes due, the full amount is due. But because there is still so much to pay, most people have to refinance to pay off their balloon mortgage. You will have to take whatever the interest rate is at the time. You don't have much of a choice here.
If you want to buy a house and only live there for a short time, less than the usual 5, 7, or 15 years, you can save a lot of money. You can get lower monthly payments with a balloon loan, and you can sell it before the balloon payment is due. This gives you a great chance to buy a bigger house for less money. The only problem is that you have to refinance if you decide to stay.
More and more people are using balloon mortgages as a second mortgage to lower their monthly payments and save hundreds of dollars every year. When you apply for a mortgage, you will have to pay for private mortgage insurance if you don't have a 20% down payment (PMI). You can avoid this by taking out two loans at the same time, one for 80% (first mortgage) and the other for 20% (balloon loan). This way, you won't have to pay for expensive PMI.
You can even get a bigger balloon loan if you use the value of your home as collateral. Another choice would be to use the money for construction and remodelling projects around the house, especially if you want to do this before you sell. When you apply for a balloon loan, you should look at the different fees and compare a few possible mortgages to see which one gives you the best deal. Also, make sure you get one that doesn't charge you extra if you pay it off early.
