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Why you should avoid a mortgage balloon loan
There is one type of risky mortgage loan that seems to entice many buyers because of the short-term gains. The balloon loan may look harmless enough at first, and it may even remind you of the hybrid mortgage loans. However, there are some serious pitfalls with this type of loan you need to be aware of. In this type of loan, you get a fixed interest rate for a predetermined period (perhaps five or 10 years). The big caveat, however, is that your entire balance will become due at the end of this predetermined period. Did you get that? You will have to pay off the remaining balance -- the complete loan! The reason that some borrowers choose to go with the balloon loan is simple enough. Many people are enticed by the initially low interest-rate. Perhaps they would not qualify for other loans or would have to pay exorbitant interest rates. Or perhaps, like far too many Americans in the last few years, the borrower is trying to over extend himself and purchase a more expensive home than he could otherwise afford. Needless to say, we don't like these kinds of loans because we believe they are too risky and can do serious damage to your financial and emotional health. Also, if you're counting on being able to refinance before the loan becomes due, you're definitely taking a gamble. There are many reasons why you may not be able to refinance in time before the entire loan is due. These include a sudden loss of employment (which is unfortunately a little too common these days), a decline in your property's value, or any number of other reasons. You should understand that refinancing a mortgage is not guaranteed in your future. If for some reason you feel that you have to take the balloon, go forth the longest term possible so you have 7 or 10 years before the loan becomes due. Begin the refinancing process as soon as is feasible, and try to secure some backup funds from a relative or other cosigners if at all possible. If you are trying to afford a property that is a bit outside your price range, or if you have a poor credit history, you may simply want to delay your purchase of a new home. Likewise, if you don't have much in terms of the down payment, consider waiting so you can acquire a better deal on your mortgage loan. If at all possible, begin an accelerated savings program to reach your goal faster and be able to put down a sizable down payment. source: http://www.goarticles.com/cgi-bin/showa.cgi?C=3019059 |
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