A balloon payment mortgage is a home loan which is not fully amortized throughout the term of the

A balloon payment mortgage is a home loan which is not fully amortized throughout the term of the

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A balloon payment mortgage is a home loan which is not fully amortized throughout the term of the loan, as a result leaving the balance owed at maturity. The last payment is called the balloon payment because of its large size. Balloon payment mortgages are more common and mostly used in commercial real estate financing and are much less common in residential real estate. Balloon payment mortgages are loans that are usually short term mortgages that have a few elements of a fixed rate mortgages. The balloon loans offer a level monthly payment feature for the duration of the term of the loan, but balloon loans do not fully amortize over the original term as opposed to the 30 year fixed rate mortgage. Balloon loans can have a lot of different types of maturities. However, nearly all first mortgages balloons have a term range of 5 to 7 years. Moreover, balloon payment mortgages may have a fixed or a floating interest rate,
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Unformatted text preview: depending on the agreement. This is why this type of loan is mostly used in the commercial real estate financing. It allows for low monthly payments which helps businesses with cash flow. At the end of the term, for a balloon loan, there is still the matter of the remaining principal loan balance. The lending institution usually requires that the loan balance, or balloon amount, be paid in full. This can be accomplished by refinancing. A lot of lenders include additional options such as a conversion feature at the end of the term. For instance, a balloon mortgage at maturity can be converted to a 30 year fixed loan. Of course this type of option comes with predetermined costs. Either way, if you are dealing with or are interested in a balloon mortgage, you should expect lower monthly payments, with a big payment due at maturity....
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This note was uploaded on 03/06/2010 for the course ART 121 taught by Professor Mack during the Spring '10 term at Academy of Design Tampa.

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