Tuesday, January 15, 2008

How to Get a Balloon Mortgage


A balloon mortgage carries a fixed rate, just like a regular 30-year mortgage. The trick is, in three to ten years, the full remaining balance comes due.


Difficulty: Moderate

Things You'll Need

  • Online Mortgage/finance Services



Step One

Proceed with getting a balloon loan exactly as you would for any other mortgage. (Note the distinguishing factor that a balloon mortgage generally carries a lower-than-normal fixed interest rate for the initial period - usually three to ten years.)

Step Two

Ask the lender about the interest rate.

Step Three

Ask the lender when the balance will come due.

Step Four

Ask if there's a refinance option when the balance comes due.

Step Five

Ask if the refinance option (if any) can be lost or forfeited, and if so, how.

Step Six

Ask if you would have to re-qualify for a mortgage when the balance comes due.

Tips & Warnings

  • Balloon mortgages are generally seen as a short-term solution to a financing problem.
  • While refinancing might seem like an easy option, remember that it's never a sure thing. Also, consider the worst-case scenarios: What if you lose your job and cannot refinance? What if interest rates soar and you're faced with refinancing at an astronomical rate?
  • In the real estate business, balloon loans are also called "bullet loans," because if the loan comes due during a period of high interest rates, it's like getting a bullet in the heart.
  • If rates rise more than 5 percent above the balloon interest rate, you could be required to re-qualify and have the home reappraised.

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