Balloon Rate Mortgages

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Here’s some of the details of the payments they could expect with a balloon mortgage as well as with 30- and 15-year fixed-rate home loans, as well as a 5/1 adjustable-rate mortgage.

Balloon Mortgage Payments and Rates Comparison information balloon mortgages are so named because the entire balance becomes due in full at a predetermined date. At that time, the payment on the note suddenly expands or balloons.

Like ice cream, mortgages come in a wide variety of "flavors," or different types. And just like ice cream, the best-selling variety is plain vanilla – the fixed-rate loan.

Advantages. If, for example, 30-year fixed rates are 4.00 percent, a five year balloon mortgage might have an interest rate of 2.5 percent. For a $200,000 home loan, the 30-year loan payment would be $955, while the balloon mortgage payment would be $790. However, after five years, the remaining $176,151 balance would have to be repaid or refinanced.

Balloon mortgages come with lower interest rates than adjustable-rate and fixed-rate mortgages, which can make them a cheaper loan for certain customers. This option works well for people who expect to get a raise at work or who plan on having a larger paycheck in the upcoming years.

A balloon mortgage is a mortgage that usually has a relatively short term of 5 – 7 years with a low interest rate and a lump sum due at the end.

A balloon mortgage is usually rather short, with a term of five to seven years, but the payment is based on a term of 30 years. They often have a lower interest rate, and can be easier to qualify for than a traditional 30 year fixed mortgage.

In addition, according to Freddie Mac, mortgage seekers may qualify for a larger loan amount with a balloon mortgage than with an adjustable-rate or fixed-rate mortgage.

This probably means it’s an adjustable-rate mortgage, which isn’t necessarily a trap, but it’s important to know. Directly under that, the document tells you whether the loan has a prepayment penalty.

Balloon mortgages have an early repayment option. Borrowers can also establish their loan similar to a traditional fixed-rate mortgage with the embedded option. A balloon payment mortgage may have a floating or a fixed interest rate. Conventional fixed-rate mortgages typically have a higher total debt repayment than that of balloon mortgage loans.

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