Since balloon mortgage loans are partially amortized mortgage loans, if you take one in the Greater Boston Area you will have small monthly payments for a period of few years. After that, you will be expected to repay the mortgage lender the entire balance amount.
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Because the term period of such mortgage loans is quite small (usually anywhere between 7-15 years), unless you earn a lot of money or come across a fortune, in most cases you will not be able to make the balloon payment i.e. the remaining balance of the loan, once the loan expires. If you are in such a situation, you have a number of options available to you.
Options Available after Balloon Loan Term Expiry
- Extension of Loan Term: The first option is to talk to your mortgage lender for a loan extension. Such an extension will provide you with valuable time to come up with the balloon payment and help you to avoid a default on the mortgage loan.
- Reset the Loan: The second option is to reset the loan at any time before the expiration of the loan term. This option will only be available if you have negotiated the right to reset your loan prior to finalizing the loan. Additionally you will be allowed to use that right only if you are a resident of that house, have paid the monthly payments regularly, have a high credit score, and have no other liens on that property.
- Refinancing: Another option available to you is to refinance the balloon loan into a normal fully amortized loan at the prevalent mortgage loan interest rates.
- Sell: The fourth option available is to sell your house at a profit, use the money gained to repay the balloon payment to the lender.
People Whom a Balloon Loan is Meant ForBalloon mortgage loans have their fair share of negatives. From the options available to a borrower after expiry of the loan period, it is evident that such loans are meant for:
- People In a Low Paying Job Who Have High Confidence in Future Promotions: A balloon loan will allow you to borrow more money and hence buy a bigger house with your current salary. If you are highly confident that within a few years you will be promoted a few times and be financially stable enough to repay the loan amount in full, then this loan may be a good fit for you.
- People Expecting a Large Inheritance: If you know that within the next few years, you will be receiving a large inheritance that will allow you to make the balloon payment at the end of the loan.
- People Who Are Sure On Selling: Lastly, if you plan to stay in the house only for a few years (1-5) and know that you will be selling the house before the balloon payment is due, then this mortgage loan might be a good option for you.
Either way before taking the leap, do your homework, and talk with a Boston mortgage lender.