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what
exactly is a balloon loan…
A balloon loan is a mortgage that often allows
for low interest rate payments, but at the
end of the loan term, what is left of the
mortgage principle is due in one lump sum
payment. The major problem with such a loan
is that the borrower needs to be self-disciplined
in preparing for the large single payment,
since the payments being made are not enough
to repay the loan.
3-15
YR Balloon Loans
These loans are offered in three, five, seven,
ten or fifteen year periods and are usually
pegged to a treasury index. The outstanding
balance must be either refinanced or paid
in full at the end of the initial period.
A fee is usually required to refinance and
lenders are not required to extend the loan
after the balloon date, although some lenders
may do so.
This
type of loan is generally done as a 'quick-fix';
since the loan requires very little capital
outlay during the loan period, giving the
borrower the ability redirect leftover income.
(i.e. to fix credit debt) |
