Calculate Balloon Mortgages
With
a balloon loan, at some point you'll be
forced to pay off the loan, refinance the
loan, or exercise a conversion option to
get a new loan on or before the balloon
due date. Unlike standard fixed or adjustable
loans, balloon loans are not amortized. The
entire loan balance is all due and payable
in a relatively short time.
One
of the most popular balloon programs
is the 30/5, commonly referred to as
a "thirty-year due
in five." The interest rate is fixed
and the monthly payment is sufficient to
pay off the loan in thirty years, but the
outstanding principal balance is due at
the end of five years.
Some 30/5s
have a conversion option which allows you
to convert to a twenty-five year, fixed
rate at the time the balloon becomes due.
There may be a minimal processing fee (typically
$250) to convert to the new loan.
The conversion
rate is normally the FNMA sixty-day rate
plus .5 percent. The conversion option
may also be conditioned upon: |
 Mortgage Programs |
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- Satisfactory mortgage-payment history.
If your payments were late, the conversion
may be denied.
- If the loan was secured by an owner-occupied
dwelling, the dwelling will still need
to be owner-occupied. If the house is a
rental at the time of loan-conversion,
the conversion may be denied, or you might
be charged a higher interest rate.
- Secondary financing may not be allowed.
If you have a second mortgage, the conversion
may be denied unless you pay off the second
mortgage.
Terms vary by lender. More
information can be found in the loan obligation
(promissory note). This is a document the
lender will require you to sign at the time
of closing.
Another popular balloon
loan program is the 30/7. This is similar
to the 30/5 except that the balloon comes
due at the end of the seventh year. |
