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Refinance Mortgage Balloon Coming Due

December 6th, 2010

Refinancing has proven to be a lifesaver for various reasons and for many people. If youve a balloon mortgage coming due, refinancing may also be your salvation.

What Are Balloon Mortgages?
Balloon mortgages are essentially short-term loans. When you acquire a balloon mortgage, your monthly payment and interest rates are based on thirty-year loan amortization schedules. That sounds good, doesnt it? But keep in mind that these are short-term loans; they usually cover five to seven years and on the final payment date, youll be required to make a balloon payment. This payment will cover the entire remaining balance of your loan.

If you cant afford to do that then youll be forced to refinance your loan or lose your property.

The Right Time to Acquire a Balloon Mortgage
There are three ideal situations that would merit a balloon mortgage for your home.

Low Monthly Payments
Right now, low monthly payments are the only way you can think of in order to afford a home for you and your loved ones. If so, theres probably no other type of mortgage that could give you lower rates than balloon mortgages. But of course, the final balloon payment is another story.

Selling Your Property
Youre happy with your current home but you also know that in five to seven years, youll be moving out for one reason or another and you hope to have sold your home by then. Having such plans will make a balloon mortgage is ideal. With a balloon mortgage, you dont have to worry at present about high interest rates and high monthly payments. And when its due date comes up, you wont have to worry either because you can then use the proceeds from selling the property to settle your loan.

Expecting Higher Income
Finally, a balloon mortgage is nothing to worry about if you expect to receive substantial income or earnings in the near future, one thats hopefully more than adequate to settle your balloon payment.

Factors to Consider When You Refinance Your Balloon Mortgage
Now, planning is all well and good but there are times when nothing, no matter what you do, will go your way. Youve done all you could but in the end, you realize that you cant afford to pay off your final balloon payment. When that happens, you have only two options: refinancing or losing your property. If you choose the former, here are several important factors to consider.

Rates
Definitely, you should choose a refinance loan that offers you better rates compared to your existing loans. To qualify for such loans, however, youll need to prove to lenders that youre a good credit risk.

Type
What kind of mortgage would you like to take out this time? Dont repeat past mistakes. If a balloon mortgage didnt work the first time around, it might not work the next time either. Take out the kind of loan youre most comfortable with. Youve got a lot of options to choose from so take your time weighing the pros and cons of each alternative.

Charges
Refinancing would occasionally come with hidden fees or charges so make sure youre aware of exactly what youll have to pay when you refinance your balloon mortgage.

Source
Last but not the least, get a refinance loan only from trusted providers!

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40 Year and 50 Year Mortgages – What Are The Risks?

August 15th, 2009

You may have noticed recently that more and more lenders are advertising loans with terms of 40 or even 50 years.

The reason for the longer term is simply to stretch out the payments, and thus lower your monthly payment. You will certainly be paying more in interest, but that really only applies if you plan on keeping your mortgage for a long time. The average borrower holds their mortgage for five to seven years. Most sub-prime borrowers re-finance their loan if even less time.

Sub-prime Market

Although 40 year terms are available to prime “A-paper” borrowers as conforming loans, the majority of 40 and 50-year mortgages are in the sub-prime market. While extending the term of your mortgage will lower your monthly payment, you will be paying much less of the principal down.
Recommmended Mortgage Lenders:

Lending Tree
- Bad Credit OK
- Purchase, Home Equity & Refi
- This company provides up to 4 loan offers from one application. They provide quick approvals and are one of the largest loan companies on the web. We recommend applying here first.

We use the following examples:

Example 1

Assume you take out a $200,000 loan at a fixed rate of 7.5% for 30 years. Your total monthly payment would be $1,398.43. In the first month, $148.43 of that payment would go towards your principal and $1,250 would go towards interest. Your total interest paid over 30 years would be $303,434.45, with an average monthly interest payment of $842.87. It would take just over 21 years to reduce your principal to below $100,000.

Example 2

Next, we can look at a $200,000 loan at a fixed rate of 7.5% for 40 years. Your total monthly payment would be $1,316.14. In the first month, $66.14 of that payment would towards your principal and $1,250 would go towards interest. Your total interest paid over 40 years would be $431,747.90, with an average monthly interest payment of $899.47. It would take about 30 years to reduce your principal to under $100,000.

Example 3

Finally, we’ll take the same scenario, a $200,000 loan at a fixed rate of 7.5%, but with a 50 year term. Your total monthly payment would be $1,280.47. In the first month, only $30.47 of that payment would go towards paying down your principal and $1,250 would go towards interest. Your total interest over 50 years would be $568,280.32, with an average monthly interest payment of $947.13. It would take 40 years to pay down your $200,000 loan to below $100,000!

Recommended Refinance Lenders:

Lending Tree
- Bad Credit OK
- Purchase, Home Equity & Refi
- This company provides up to 4 loan offers from one application. They provide quick approvals and are one of the largest loan companies on the web. We recommend applying here first.

More Interest Paid

Obviously, it does not make much financial sense to keep these 40 and 50 year mortgages for their full term. The difference in total interest paid between a 30, 40 and 50-year term mortgages are astounding! These longer term mortgages are not designed to be held for their full term; rather, they are a way to save money on a monthly basis. They can be very useful however in the short term under certain conditions. If you’re purchasing a home in an area where property values are increasing rapidly, the increased appreciation of your home can make up for the fact that you are not paying down the principal as quickly.

Great “Starter” Loan to Minimize Payment

These longer term mortgages make sense if you are looking for a “starter” loan where you can minimize your monthly payments and build up a good credit history. Then, when you’ve got a higher credit score, you can qualify for the best fixed interest rates as a “prime” borrower.