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.
Related or Semi-related Video
Finance: What is a Reverse Mortgage?6 Views
Finance allah shmoop What is a reverse mortgage All right
people let's start with a normal mortgage You put one
hundred grand down borrow three hundred grand and are the
proud new owner of this baby in palo alto california
You make payments for thirty years at five percent interest
and then you retire their debt free So that's a
mortgage but what's a reverse mortgage Like one of these
egg trump Well kind of at least financially the payments
go in the opposite direction of a normal mortgage Like
you're old you just want to live out your remaining
years with the basic comforts Shower seats stair lift high
absorption adult diapers You own all of your home No
mortgage on it You paid it all off The home
is now worth a million box Nice shoebox There you
can do a reverse mortgage pledging your home is an
asset and basically just receiving a payment of l say
five grand a month from that reverse mortgage and you'll
get to deduct interest costs as you go Justus if
it were a normal mortgage well after forty months you
you know croak in that time period you've taken out
Forty times five grand or two hundred grand in loans
plus some interest and you sell your home for a
cool million Rather your heirs dio So what happens now
Well they just take the million bucks from the sale
write a check for two hundred grand and change to
the bank to pay off the reverse mortgage that you
had accrued while you were you know wasting away to
nothing and your heirs end up happy like they miss
you But you know a free stair lift Who are 00:01:37.997 --> [endTime] you
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