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Balloon Morgage Definition...
BALLOON MORGAGE:
This type of morgage typically works like a regular thirty year fixed morgage but, after a pre-determined number of years, the entire remaining balance is due in a single payment. (If you can picture a balloon, the lump sum due at the end would be the large, blown up part of the baloon.)
7 YEAR BALLOON MORGAGE:
This is the most common of the baloon morgage amortization terms, with an interest rate that is usually slightly below that of the thirty year fixed morgage. The payments are 'amortized' over a thirty year period, so a large balance will still exist after the 7 year period when the remaining balance becomes due in full.
This is an option many people investing in property or purchasing a 'starter home' desire because it offers a lower payment and gives you a full 7 years to watch the market for the right time to lock in a low thirty year fixed rate. The drawback is that you face substantial penalties if you do not secure financing or otherwise payoff the loan within this time frame.
10 YEAR AND 15 YEAR BALLOON MORGAGE PROGRAMS ARE ALSO AVAILABLE
Other Common Morgage Terms
Bankruptcy:
The legal process in which a person or firm declares the inability to pay debts. Upon a court declaration of bankruptcy, a person or firm surrenders assets to a court-appointed trustee, and is relieved from the payment of previous debts.
Broker:
An individual or company who does not fund loans himself, but facilitates the processing or approval procedures for a customer. A broker generally uses a lender to approve and close loans for customers rather than close and fund the loan himself or itself.
Buy-Downs:
Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply to the full duration of the loan or just the first few years. A buydown may be used to qualify a borrower who would not otherwise qualify. This is because a buydown results in lower payments which are easier to qualify for.
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Balloon Morgage Definition, Rates and Informative Details
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