A balloon payment mortgage is a fixed rate mortgage is not repaid with a large final payment. In general, the mortgage is due within five to seven years. At the end of the word the borrower pays final payment which is much larger than the regular mortgage payment. Therefore, the final payment represents the balloon.
Most mortgage balloon payment mortgage is interest only. The borrower only pays interest periodically. Thus, the principal remains the same. In the end, the borrower pays the principal substantial.
For example, the monthly mortgage payment is $ 3,333.333 on a $ 200,000 mortgage with an annual percentage rate of 20%. First, it is estimated total interest reaches $ 40,000 ($ 200,000 x 20%). Then, divide the total interest with the number of payments in a year. Therefore, the monthly mortgage payment amounts to $ 3333.33 ($ 40,000 / 12 monthly payments).
The mortgage payment balloon mortgage payment is usually based on a thirty-year mortgage with a term of five to seven years. It is also easier to qualify for this mortgage. And interest rates are much lower than traditional mortgages.
Generally, the borrower sells the property before the mortgage matures to avoid the final payment. At the end of the period, the borrower needs to pay the final payment. The borrower must sell property, to refinance or convert the mortgage before the end of the term.
The borrower can make balloon payment mortgage amortized over traditional mortgages. In a repayment mortgage, the mortgage payment pays the principal of each periodic payment.
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