Balloon Mortgages and Traditional Mortgages:

Balloon mortgages can be easier to qualify for when compared to traditional 30 year fixed mortgage. There is, however, a risk involved. At the end of your loan term you will need to pay off your outstanding balance. This usually means you must refinance, sell your home or convert the balloon mortgage to a traditional mortgage at the current interest rates.

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. However, as opposed to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term.

Balloon Mortgage and Adjustable Rate Mortgage:

Balloon mortgage differs from an ARM (adjustable rate mortgage) in the way that after the fixed period, the interest rate changes only once. On the other hand an ARM will continue to adjust on either a semi-annual or annual basis. In case of balloon mortgage your rate will generally change to the prevailing 30 year fixed rate available at the time. Balloon mortgages are available up to the conforming limit (currently it is $322,500). You must make sure that you are getting the mortgage product that suits you about balloon mortgage pricing while shopping for the same.

Convertibility of Balloon Mortgages:

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 generally achieved by refinancing. Many companies have other options such as a conversion feature at the end of the term. Your conversion can be guaranteed based on certain criteria such as having made your last 24 payments on time.

More References

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