Balloon
Mortgages
Balloon loans are
short term mortgages that have some features of a fixed rate
mortgage. The loans provide a level payment feature during the
term of the loan, but as opposed to the 30 year fixed rate
mortgage, balloon loans do not fully amortize over the original
term. Balloon loans can have many types of maturities, but most
balloons that are first mortgages have a term of 5 to 7 years.
At the end of the loan
term there is still a remaining principal loan balance and the
mortgage company generally requires that the loan be paid in full,
which can be accomplished by refinancing. Many companies have
other options such as a conversion feature at the end of the term.
For example, the loan may convert to a 30 year fixed loan at the
thirty year market rate plus 3/8 of a percentage point. Your
conversion can be guaranteed based on certain criteria such as
having made your last 24 payments on time. The balloon mortgage
program with the conversion option is often called a 7/23
Convertible or 5/25 Convertible.
Dependable
