A balloon mortgage is considered a more affordable form of financing for people. Your initial installment is calculated much like a normal mortgage – over 30 years. The actual term of the loan, however, is shortened to say, 10 years. When that period is up, whatever is still owing on the loan has got to be repaid in one big lump sum. Let us say that the house cost $200 000. You would be looking at a repayment of around $1400 per month with a normal mortgage. You would pay $1400 a month for the 10 year term. At the end, there would be say $100 000 left. You would have to then pay $100 000 as the final payment in your loan.
This is not always the best idea when it comes to buying a home and can be more expensive. For the most part, people use this option if they are not going to be keeping the home for a long time. The interest rate can be pretty good, especially if you go through private investors. They are not willing to keep their monies locked in for decades at a time. You also may be due for a big promotion in a few years time but might want to buy the house of your dreams now. This is one way to afford a better house today – you do need to be pretty sure that things will get a lot better though. When the time is up, you may either look for alternate financing or sell the home.
The best way to make this financing work for you is to be prepared long before the term expires. Around about 12 months before the expiry date, start weighing up your options. This gives you more freedom than you would have if you were scrambling at the end of the term. You can sort out bad credit, put the house on the market, look at what refinancing alternatives there are and whether or not you could get an extension. By giving yourself ample time to research alternatives, you make sure of getting the best possible deal. You do not, after all, want to have your home repossessed simply because you could not be bothered to plan ahead. Get more tips about mortgage by visiting http://www.lacve.com.
It is also a good idea to pay in as much as you possibly can in addition to your monthly installment. If you are not permitted to do so, open up a separate savings account to fund the balloon payment.