Online Balloon Mortgages
The mortgage market is more diverse than what several borrowers think. In addition to fixed-rate and adjustable-rate mortgages, there are other types of mortgages to finance a home and one of these is online balloon mortgage.
Online Balloon mortgages are short-term fixed rate mortgages that have fixed monthly payments generally based on a 30-year fully amortizing plan. These require a lump sum to be paid at the end of their term. Typically online balloon mortgages have terms of 3, 5, and 7 years.
The main benefit of online balloon type of mortgages is that the interest rate on them is generally lower than the 15-year and 30-year mortgages, which results in lower monthly payments. The drawback of balloon mortgages is that at the end of the term, individuals will have to come up with a lump sum to pay off the lender, either through a refinance or from their own savings.
In certain cases, online balloon mortgages allow borrowers to refinance their balances into new mortgages. These mortgages can be converted to fixed-rate mortgages or adjustable-rate mortgages at the end of the balloon period. Hence borrowers get lower rates for a specific period, which is generally anywhere from three years to ten years. At this stage, a borrower has to pay off the outstanding principal balance in a lump sum.
When borrowers plan to refinance the balloon mortgage at maturity, then they need not be requalified, nor does the property have to be reapproved. The interest rate on the new mortgage is the rate prevailing in the market at the time of conversion. In some cases, there may be a minimal processing fee that needs to be paid to obtain the new loan. The most popular online balloon mortgage terms are 5/25 Balloon, and 7/23 Balloon.
Online balloon mortgages help in saving costs in the beginning. It is a great option for people who don’t plan on living in the same home for long. But as and when plans change, borrowers will have to pay off or refinance the outstanding amount with time, effort, and more closing costs.