Balloon Mortgages – What You Need to Know
Balloon Mortgages are one of the simplest loans which are easy to understand for the borrower. Balloon mortgages are often highlighted as ABC due in XYZ where ABC is the loan period and XYZ is the year in which balloon payment is due.
When it comes to Balloon loan, here is a 3 step guide for you to decide:
Why do you need a loan?
- There are different kinds of loans – Commercial loan to buy an office, Business loan to raise capital, Residential loan to buy house. One should be very clear about the loan purpose, as there are different products to cater to your loan requirements. Choosing a wrong loan product could make you end up paying for more than required.
What is your Financial Goal?
While interest rates on loans are regulated by Federals and also subject to external factors, but the borrower should clear about some of these facts beforehand :
- How much loan amount you need?
- How much disposable income (returns) does one have to pay based on your lifestyle, expenses and other financial commitments?
- For many years can you pay the monthly instalments – 5/7/15/30?
- Does your loan offer you any other tax/financial benefit?
- What happens if you are not able to repay your loan? Do you have any back up plans?
Does Balloon Mortgage meet your goals?
- Is the lender providing you lower interest rates/instalment than ARMs?
- Do you have the required documents and qualifications to get a loan sanctioned?
- Is your monthly income enough to pay your instalments during loan period?
- Are you expecting a windfall change in your income source in a few years to make balloon payment?
- Is there a refinancing option available? Whether you will qualify for the same?
- Is the loan convertible to fully amortized loan at prevailing rates after loan period?