Balloon Payment Loans
Recently, I was asked some questions regarding balloon payment loans. A loan has a large sum of funds due after a fixed period of time. Generally, I do not recommend this type of the loan to my clients, however, in few cases; this can be an option if the traditional loans are unavailable. These loans typically are offered by private money lenders at rates greater than traditional lenders.
So What is a Balloon Payment?
A balloon payment is a mortgage option amortized like a 30 year fixed rate loan for a certain, shorter amount of time. At the end of the short period, the borrower will be expected to pay off whatever is left of the mortgage.
Usefulness of Balloon Payments – Reducing Time in Debt
If you want to shorten the time you spend paying interest on your mortgage balance, then you may want to consider balloon payments. Balloon payments can decrease the financial stress on the borrower and have become a new choice for borrowers.
Why Consider Balloon Payments?
A balloon mortgage may be beneficial to you if you intend on receiving a large amount of money (for instance, an inheritance or settlement) around the time the balloon comes around. Additionally, if you don’t expect to remain in the property for a long time or if you are confident that you can refinance the current loan before the end of the period, then a balloon payment may be beneficial for you.
The majority of the loans are offered in the current market have no pre-payment penalty. If you would like to pay off your loan before the term of the loan ends and save interest expense, you can always pay it off just like balloon payment loans.