When it comes to financing, a balloon mortgage is an arrangement that involves a one-time lump sum payment that can be set at any point during the loan term, which is usually done at the expiration of the agreement. When a borrower makes balloon payments, they can lower the fixed monthly payment in return for making higher payments at the completion of the loan term. In some cases, the borrower is required to pay the interest on the mortgage. A balloon loan is a fixed-rate house mortgage with a short period that has a fixed interest rate that usually spans between five to ten years. As a rule, these loans are advantageous for borrowers with a good credit score and a significant source of revenue.
In most cases, lenders will only make these loans to businesses and consumers who have excellent credit standing, enough cash on hand, and a steady source of income.
BENEFITS OF A BALLOON MORTGAGE:
- AFFORDABLE INITIAL CASH OUTFLOW – The down payment prerequisites of a balloon mortgage are lower than the down payment conditions of the more traditional alternatives currently available, which allows borrowers or purchasers to make smaller down payments. Because there is no requirement to put down at least 20% to avoid having private mortgage insurance (PMI) placed on their loan, more people will qualify for a house purchase utilizing this arrangement.
- LOWER INTEREST RATES – The appeal of a lower interest rate and annual percentage rate on a home loan cannot be denied when it comes to financing a property. On a balloon mortgage, you’ll be more likely to get a lower interest rate than you would on many other types of mortgages. You’ll also save money on your monthly payment due to this.
- LARGER LOAN AMOUNT – With a balloon mortgage, loan applicants may be able to qualify for a more significant loan amount than they would get from an adjustable-rate or fixed-rate mortgage.
- FLEXIBILITY – These loans can be particularly beneficial for people who are cash-strapped in the short term but anticipate receiving a significant sum of capital before the loan’s time is up, as well as for those who intend to sell their home at some point during the loan’s term.
- SHORTER LOAN TERM – As a general rule, a balloon mortgage will have a shorter repayment period than a standard mortgage. While a shorter loan term means borrowers will pay significantly less interest over the course of the loan (thereby lowering overall costs), it also means borrowers will have a shorter period of time before they are required to pay the entire outstanding loan balance.
Finding Your Lender
In the event that you decide to apply for a house loan or mortgage, you will be tempted by the various possibilities available to you. Our team will do everything on our part to ensure that you have access to the most outstanding real estate financing options that are available. Please get in touch with us as soon as possible to schedule a swift consultation.
Advantages of Balloon Mortgage Loans
- Lower interest rates than most other loan types
- Lower monthly mortgage payments
- Lets you qualify for larger loan amounts
- Perfect if you lack capital for your initial payments