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What You Need to Understand about Balloon Mortgage

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By : Roby Hicks    99 or more times read
If you are planning to purchase a house, you are probably looking at your different options. You can choose from the different types of financing and mortgages available. You just have to be certain that you pick one that is most suitable for your situation. One type of mortgage you are probably looking at is the balloon mortgage. Many have used this because of its benefits. However, this also comes with risks. This is why you have to be careful when making your choice.

What is a balloon mortgage? This is a type of mortgage where the initial monthly payments are low. Many would define this as a hybrid between a fixed mortgage loan and an adjustable mortgage loan. This is because the initial monthly payments are fixed but it can be adjusted after the agreed period.

Many are attracted to this type of mortgage because of the low initial monthly payments. But this will only last for a certain period. After the agreed time, the borrower has to make a balloon payment of the remaining balance of the loan. This makes it risky. The borrower does not always make the payment due to the huge amount involved.

So when are you to consider this? This is the best option if you will not be living in that house for a long time. Paying low initial monthly payments is good if you are planning to sell the house in two r three years. This is also good if you are sure to have an increase in your income after a few months or years.

If you are sure that this type of mortgage is for you, then prepare all the needed requirements and start hunting for the ideal lender. In order to find one, it is essential that you compare the rates. You should also compare the terms to make sure that you have the best deal. The application for this type of mortgage is similar with the other types of loans. So if you have applied for other mortgage before, this will be easier for you.

There are other factors you need to look at beside the terms and the rates of the lenders or financial institutions. Make sure that you review the different items in the written agreement before you sign it. It is crucial that you know when the loan is due. In most cases, the low initial monthly payments will only last for seven months.

It is important that you know when to make the balloon payment so that you can prepare the amount needed.

Most of the time, borrowers would incur another loan to pay off the balloon mortgage. However, some lenders do not allow this. This makes it essential that you review the contract of the mortgage before you sign it.

You also need a backup plan. As you can see, this type of loan is very risky. Save up for the balloon payment just in case something will go wrong.

Before you apply for a balloon mortgage, make sure that you have considered all the important factors first.
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