Mortgage Loans – Part 2 Balloon Mortgages

Mortgage Loans – Part 2

Balloon Mortgages

No, these loans don’t come with a dozen multi-colored balloons attached, but they do come with a very large sum of money attached at the end. Owed by you.

Balloon mortgages are like fixed rate mortgages where you pay a certain amount every month, but the terms are shorter, usually just 3 to 7 years. They don’t make you pay huge sums of money every month to pay off the entire loan in that short of a time. Instead, they lower the monthly payment for the time that you are making payments, and then have you owe a large amount of money at the end of the loan terms.

When would you want a balloon mortgage? When you have an inheritance coming to you in 3 to 5 years. It can also be a good arrangement for people who do not plan to live in a house for long. Often, these mortgages are assumable– meaning that the person who buys the house can take over the mortgage.

Also, if you plan to pay off your mortgage quickly, a balloon mortgage could be  good option. But be sure that you can afford to pay off the house completely before the end of the terms, otherwise you could lose your house and your credit if you can’t come up with the sum of cash at the end of the loan.

Because of the large end payment, balloon mortgages are considered higher risk. You never know what’s going to happen in the next few years, or if you’ll be able to sell the house before the end of the terms. Play it safe. Make sure that you can meet the loan terms before you float off into bliss with your new house.