A balloon mortgage is a type of financing in which the borrower must pay off the loan in a single, predetermined sum at the end of the loan term. A borrower can reduce their fixed monthly payment by making balloon payments in exchange for making larger payments at the end of the loan term. The borrower may be responsible for paying mortgage interest. Mortgages with balloon payments are short-term loans with a fixed interest rate for five to ten years. Borrowers with high income and credit scores can benefit significantly from these loans.
Lenders are typically selective about who they extend these types of loans to, preferring to work with businesses and individuals with a proven track record of financial stability and a solid revenue stream.
BENEFITS OF A BALLOON MORTGAGE:
Affordable Initial Cash Outflow
Compared to the down payment requirements of the more conventionally available alternatives, borrowers or purchasers can save money by opting for a balloon mortgage. More people will be able to get a mortgage with this setup because they won't need to save up for a 20% down payment to avoid having private mortgage insurance (PMI) added to their loan.
Lower Interest Rates
For obvious reasons, financing a home purchase with a lower interest rate and annual percentage rate is an appealing option. The interest rate on a balloon mortgage is typically lower than that of other mortgages. Also, this will reduce the cost of your regular payments.
Larger Loan Amount
Applicants for a loan may get a more considerable amount with a balloon mortgage than with an ARM or a fixed-rate mortgage.
These loans can be helpful for people who need money quickly but have access to a large sum of money before the loan term ends or for those who plan to sell their home before the loan term ends.
Shorter Loan Term
The repayment period of a balloon mortgage is typically shorter than that of a standard mortgage. A shorter loan term has the dual benefit of reducing interest payments and overall loan costs, but it also means that the borrower will have to pay back the principal amount of the loan sooner.
Finding Your Lender
If you're considering applying for a mortgage or home loan, you'll likely be tempted by the many options. Our team will go above and beyond to find you the best possible real estate financing solution. If you need to schedule a quick consultation, please contact us as soon as possible.
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