The Benefits of Having a Balloon Mortgage
Balloon Mortgage vs ARM
The Balloon Mortgage is a loan which does not amortize in the entire loan period. The borrower needs to pay an instalment for the loan period, thereafter, he has to repay the remaining outstanding balance in one go.
A Balloon Mortgage loan is different from typical Adjustable Rate Mortgage as full payment is required only at the end of the loan period. ARM’s becomes adjustable for typically 30 year period after the fixed rate period and are not due for full payment immediately. So monthly payments continue at the adjustable interest rates till the end of the loan period.
Advantage Balloon Mortgage
- It is one of the simplest mortgage options where borrower closes the loan at the end of loan period by a single balloon payment or converts into fully amortized mortgage at prevailing rates unlike the ARM’s where rate changes are subject to terms & conditions in the loan contract
- Balloon Mortgages come at a discounted interest rate compared to Fixed Rate Loan or ARM
- Lower interest rate result in lower monthly instalment during the initial period compared to ARM
- Lower monthly instalment make you eligible to qualify for a higher loan amount compared to ARM which is good for a business loan
- For a given amount of loan, it is easier to qualify for Balloon Mortgage compared to ARM as the monthly instalments are lower
- Cash starved commercial borrowers who are expecting to receive a large amount before the loan period can sustain their financial liquidity in short term, thus making it ideal for commercial mortgages and investment capital
- Balloon Mortgage also offers the option repay the balloon amount by selling your asset/property thus making it ideal for residential mortgage seekers who plan to live in a home for a short time span of 5-7 years
- It also fits into the budget of Salaried individuals with moderate monthly salary who get large bonus/gratuity/performance linked payouts at specific yearly intervals.