Balloon Mortgage

  

A balloon mortgage is a mortgage loan that has a relatively short repayment period (5 to 7 years), at which point the entire balance is due. Or, uh…balloons.

For example, Joe buys a house with a $200,000 mortgage at 6% under a 5-year balloon structure. Joe pays $1,200 a month for 7 years, at which time the balance of $127,964 is due.

Balloon Pros: Lower interest rate and monthly payment than conventional loans. Good for someone expecting a dramatic change in economic status, or someone who doesn't envision keeping that house for a long time (from 1985 to 2008, U.S. homeowners moved every 6 years on average), or expects to refinance at the end of the 7-year period.

Balloon Cons: Static or reduced income status leaves the owner in dire straits after the seventh year.

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Finance: What is a Reverse Mortgage?6 Views

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Finance allah shmoop What is a reverse mortgage All right

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people let's start with a normal mortgage You put one

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hundred grand down borrow three hundred grand and are the

00:12

proud new owner of this baby in palo alto california

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You make payments for thirty years at five percent interest

00:18

and then you retire their debt free So that's a

00:21

mortgage but what's a reverse mortgage Like one of these

00:25

egg trump Well kind of at least financially the payments

00:29

go in the opposite direction of a normal mortgage Like

00:32

you're old you just want to live out your remaining

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years with the basic comforts Shower seats stair lift high

00:39

absorption adult diapers You own all of your home No

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mortgage on it You paid it all off The home

00:45

is now worth a million box Nice shoebox There you

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can do a reverse mortgage pledging your home is an

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asset and basically just receiving a payment of l say

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five grand a month from that reverse mortgage and you'll

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get to deduct interest costs as you go Justus if

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it were a normal mortgage well after forty months you

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you know croak in that time period you've taken out

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Forty times five grand or two hundred grand in loans

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plus some interest and you sell your home for a

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cool million Rather your heirs dio So what happens now

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Well they just take the million bucks from the sale

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write a check for two hundred grand and change to

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the bank to pay off the reverse mortgage that you

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had accrued while you were you know wasting away to

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nothing and your heirs end up happy like they miss

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you But you know a free stair lift Who are 00:01:37.997 --> [endTime] you

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