Balloon Payments Can Be Tricky
This type of home mortgage loan is exactly what it sounds like. The contract of sale starts out with a small down payment. Then, it is treated as a thirty year fixed-rate mortgage loan in that your payments stay the same and do not fluctuate with the interest rate.
Your interest rate is locked in. In usually three years, the balance of your home loan is due in full. A Balloon Payment home mortgage is very similar, starting out with a fixed-rate of interest and treated as a conventional loan that is usually based on a thirty year mortgage. Then, from between three to seven years, the remainder of the balance of the loan is due paid in full. This option is attractive to someone with less than perfect credit or who does not have a credit history to get into their own home. It is also an easier home mortgage to qualify for. The contract of sale or balloon payment gives you three to seven years to either repair your credit or gain a credit history so you can obtain a Fixed-rate home mortgage loan. Obtaining new financing is the only option available if you wish to stay in the home other than paying it off in full. Many people who chose the contract of sale or balloon payment home mortgage loan sell the home at this point. It is a similar situation as that of leasing a car.
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