Jul 05 2010
Understanding About Balloon Mortgage
Understanding About Balloon Mortgage - A balloon mortgage is one that is not fully prepaid at the end of its term.
For example, you might get a 15-year fixed rate mortgage that allows you to pay less than the normal amortization schedule would call. At the end of 15 years, you still will owe a portion of the principal. How much depends on contract terms.
An interest only mortgage is an example of the type of loan. In the case of interest only, balloon will be the total amount you originally borrowed.
Type of mortgage allows borrowers either to buy more houses then they otherwise could buy or that reduce their monthly costs, allowing them to spend or invest their savings elsewhere.
Again, if you plan to move the balloon before its maturity and the results of your sales enough to cover the balloon, this might be a good idea. However, you face the very real possibility of having to come up with cash when you sell to cover the balloon, especially if you have to sell when the housing price decline.