Tuesday, January 15, 2008

How to Get a Balloon Mortgage

Introduction

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.

Instructions

Difficulty: Moderate

Things You'll Need

  • Online Mortgage/finance Services

Steps

1

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.)
2

Step Two

Ask the lender about the interest rate.
3

Step Three

Ask the lender when the balance will come due.
4

Step Four

Ask if there's a refinance option when the balance comes due.
5

Step Five

Ask if the refinance option (if any) can be lost or forfeited, and if so, how.
6

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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