Mortgage Loan - Beware Balloon Payments

Balloon payments can be a nasty surprise for any homeowner that does not fully understand their loan contract. Here are the basics you need to understand about balloon payments and why you should avoid them.

A balloon payment is simply a large sum of loan principal due at a certain time. The balloon payment can represent a portion or the entire balance of the loan principal. Balloon mortgages frequently come in the form of interest only loans. These mortgages are attractive because of they are easy to loans to qualify for and have very low monthly payments.

The problem with an interest only mortgage of this type is that the balloon payment is due at the end of the mortgage term. Loans of this type are typically only for seven to ten years. At the end of this time the principal balance is due; if you dont have the cash you will be forced to refinance the loan. Refinancing will cost you lender fees; however, if you are unable to qualify for a new mortgage you could lose your home to foreclosure.

Many homeowners used interest only loans of this type because they could not qualify for a traditional mortgage to purchase their dream home. These homeowners could not qualify for regular financing then, and if their financial pictures have not improved, how can they expect to qualify when the balloon payment is due? These people will lose their dream homes to foreclosure.

The lesson to be learned from these homeowners is simple. Do not purchase more home than you can afford using risky financing. To learn more about borrowing responsibly, register for a free mortgage guidebook.

Louie Latour is a mortgage professional and the owner of RefiAdvisor.com, a mortgage resource site offering a free gift for homeowners: "Mortgage Refinancing - What You Need to Know." This guidebook helps homeowners avoid common mortgage mistakes and predatory lending practices.

See Also:

Mortgage Glossary - A Glossary of Mortgage Terms You Should Know
Acceleration Clause A clause in a mortgage defining that the entire outstanding balance can become due and payable should mortgage default occur. If the entire balance is not paid, the property will be foreclosed.Adjustable Rate Mortgage (ARM) Mortgage with interest rates that may be adjusted by ... more...

Online Mortgage in UK - Introducing the Best Mortgage Plan Across UK
Add the term online and it will open for you an exhaustive assortment of opportunities. Add online to mortgage and it will have the same effect. So many people want to get mortgage programme and get with it fast. The online mortgage in UK indisputably takes lesser time and simplifies the entire ... more...

Types of Loans
Loan Types What types of loans are available to me? There are many different types of mortgage offered to consumers. Some of the most popular mortgage broker are the FHA Home Loan (Federal Housing Administration) and the VA Loan . Because the FHA mortgage and VA mortgage are guaranteed by the ... more...

Lowest Mortgage Rates UK Lowering the Cost of Mortgage
Mortgage is the most widespread industry that offered to loan borrowers with real estate as collateral. Mortgage has so many innovations and opportunities that a loan borrower can exploit them for their own benefit. You must have heard and read it elsewhere that mortgage rates are at an all time ... more...