Mortgages - Types and Variants

• Balloon Loans
  (Tenure for three to ten years)
  Balloon loans are similar to long term fixed rate mortgages. Where after the first three or ten years, you have to repay the entire loan balance. It requires a series of equal payments, rather than one time large payment, or balloon, at the end of the loan tenure. Balloon mortgages are offered at fixed rates, though some adjustable-rate balloon mortgage loans are also available. The payments on a balloon mortgage generally cover interest only, so you do not build equity in the home over time.

  Now you may wonder what is the benefit of Balloon Loan then. One motivating factor is that you save money. All things being equal, a balloon loan has a lower interest rate than a fixed rate mortgage. Buyers are more commonly backed on these loans only during high interest rates because it may be the only option.

  But there is a word of advice for availing balloon loans. Go for such a loan only if the following three conditions are fulfilled. If you 
  

  • are very sure to buy a specific property.
  • have no other option but to avail the balloon loan.
  • are confident about your refinancing options and capacity when the balloon comes due.
  
  The risk involved in balloon mortgage is that, if you fail to pay off the balloon or get refinance at the end of the tenure, you stand to lose your home, and all the money paid to the owner till that time.
  
  

Conclusion

Now it is easier for you to choose the correct Mortgage loan option. However, there are other variants available in the market but you must be clear on the entire amount of interest to be paid by you over the loan tenure. If you can make a correct evaluation of your needs and your pocket then you are sure to hit the bull's eye and come out as a winner.

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Other Useful links

Benefits and Advantages of Home Ownership

HomeBuyer's Closing Cost

Loan Points For Home Buyers

Debt And Equity Financing

Repaying Debt By The Defaulter

Mortgage Credit Information