Andrew Vaughey, Is A Balloon Mortgage Really What You Want?

[Super Star]

Andrew Vaughey, Is A Balloon Mortgage Really What You Want?


In these days of hustle and bustle, and everybody just generally being in a
hurry, it is also true that you can get a mortgage that way, too. But the
speed and the rush that may surround your getting a mortgage for that home
that you wanted, may also have prevented you from finding out what you
really got yourself into. Balloon mortgages are becoming more common, but
are they as good as some claim? Here are some things you need to know about
balloon mortgages before you sign your name to one of these contracts.

Like other mortgages, a balloon mortgage is taken out for 30 years. One
difference, though, is that it never fully amortizes. Typically, they will
be required to be paid in full after only 5 or 7 years, but some also go for
as long as 15. Like a regular mortgage, the payments are based on the
30-year period in order that the payments would be the same.

The difference comes in the "balloon" part. Just like balloons are large and
can suddenly get in your way, so is a balloon mortgage. At the end of the 5,
7 or 15 years, when it becomes due, you owe the entire balance. Since most
people cannot afford to hand over such large sums of money in such a short
time, the mortgage will need to be refinanced, or you could sell the house
in advance, or lose the house.

There is a guarantee, usually, in the contract stating that you can
refinance. While this should provide a degree of comfort, you need to
realize that if you refinance only when it is due, then you may be stuck
with whatever the interest rate is at the time. It could be much higher, and
your monthly payments much larger, too. In reality, though, the lender may
not refinance if you just fail to be on time with even one payment in the
last year before refinancing. If the interest rates, are high, you may not
want to refinance. In either case, you risk losing the house.

Another problem is the amount of equity that you will have after the 5 or 7
year period. There will not be much equity built up, and that could leave
you with a very bleak future because, even if you sell the house, you may
not get enough for a serious downpayment on another one.

If you plan on living there for any length of time, you are probably much
better off with regular financing. One great advantage is that you can pick
and choose a time when interest rates drop to be able to consider
refinancing if you want, rather than being stuck on whatever the rates are
when you must refinance. Besides that, you have a greater level of security
for yourself and family in knowing that the rates are secure (unless you get
an ARM).

A balloon mortgage does have a good customer, though, for someone who knows
that they will not stay in an area but for a few years. The steady payments
gives them an opportunity to have a house, reasonable payments, and will
allow them to sell in time to be able to be able to avoid having to
refinance in order to keep the house.

 Joe Kenny writes for the UK personal finance sites  and also
-------------- next part --------------
An HTML attachment was scrubbed...
URL: http://lists.us.dell.com/pipermail/linux-poweredge/attachments/20080104/1754fe07/attachment-0001.htm