Is an amortized balloon mortgage loan a bad idea?

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We are trying to use a local credit union and want a 15 year loan. This amortized balloon is what they offer. Just wondering of this is a good idea or should we shop around more?

I had a hard time getting a mortgage because my better half’s credit was not so good so they had to base everything on me. The only type of loan we good get was a loan they called a balloon mortgage. It is fixed for 5 years at 7.25 and we were told we would be able to refinance after a couple of years. What happens if we don’t refinance. Will my monthly payment go alot higher.

12 Comments
  1. Reply
    Reggie
    January 21, 2011 at 12:48 am

    Well, you want to see what other banks are offering before you go with the first company. Make sure you do your home work before you sign. Now, if your credit is not good then you don’t have may options or if your income isn’t high based on what you are trying to buy then once again you are not going to have many options.

    But, if you have a good credit score and a good income level then you should get plenty of offers. Have an Attorney look them over first.

  2. Reply
    Judy
    January 21, 2011 at 1:42 am

    Yes, it’s the worst decision you will make in your life.
    One that you will regret for many,many years to come.

    Only do 15 or 30 year fixed.
    No ballons, no options, nothing adjustable, nothing amortized.
    Haven you been watching the news – that’s why everyone is in such a mess.

    The bank obviously wants your house. And I don’t blame them, we are nearing a bottom, your house would be a perfect thing for the bank to own.
    If you can, please, please do a 30 year fixed – and say no to those scammers.
    /

  3. Reply
    Move on
    January 21, 2011 at 2:16 am

    VERY bad. Unless you are rich and consider this property investment only. In this economy paying off a mortgage is not a good thing. Go with a 40 year fixed. You can always make principal payments if you want to pay off early and the money save monthly may keep you from hardships that do come up.

  4. Reply
    Jay S
    January 21, 2011 at 3:00 am

    Just be sure you understand how the balloon loan works. You pay an amortized payment based on a schedule such as 15 years. Your balloon full payoff could be due at a different time before that point, say 5 years.
    You have to be ready to refinance or sell the house before or at the balloon payment date.
    The pitfall is at that time, what is the house worth and what will your credit and income be at that point? That’s the trap that has caught a lot of ARM loan people. They planned to refi or sell after a certain number of years, but they can’t because property values plummeted below what they owe on the loan. You’ll have a problem if the value drops below what you need to refi.
    Safer bet is a 30 year conventional amortizing loan. Make principal payments above that payment if you want. That way you don’t HAVE to refi just to stay in the house.

  5. Reply
    Doctor Deth
    January 21, 2011 at 3:40 am

    unless that gives you the same payment and payoff schedule as a fixed rate loan, why would you do it – what is the advantage vs a bank 15 yr loan? if there is a ballon pmt due after 15 yrs, it is not a 15 yr loan – probably no better than a 30 yr loan

  6. Reply
    roderick_young
    January 21, 2011 at 4:20 am

    Horrible, horrible! This is the kind of thing that made people lose their houses in the housing crash. People became comfortable with their $ 1000 a month payment, not thinking about the future, when that balloon payment would come due. After all, they could just refinance before the balloon was due, right? Then housing values dropped, and they couldn’t refinance. And there was no way they could come up with $ 50,000 on the spot when the time came. That’s putting yourself in similar peril of losing your home, if you ask me.

    Please keep shopping. And while you’re doing it, save furiously. With a larger bank balance and more down payment, you should be able to find a more conventional loan.

  7. Reply
    Michael K
    January 21, 2011 at 4:55 am

    At the end of 5 years, the rest of the balance is due in full.

    That’s what Balloon means, there’s one GIANT (think inflated balloon) payment due at the end.

    I hope that helps.

  8. Reply
    William H
    January 21, 2011 at 5:10 am

    The interest rate will be the same for 5 years. At that point your interest rate varies with an index such as the 11th District Cost of Funds. A ballon mortgage means there is a principal payoff due.

    Read your loan documents…please…

  9. Reply
    Mortgage Man
    January 21, 2011 at 5:56 am

    Your payment will not change at after 5 years. That’s an Adjustable Rate Mortgage. What you have is a balloon. This means after the 5 year term, you have to come up with the total remaining balance or the mortgage holder can take your home away from you! Call a local broker/banker and get out of that quickly as possible!!!! If they’re unable to refinance you at the current moment, talk to a good reputable broker who can tell you what steps to take to repair your wife’s credit, and get a decent interest rate! Check out the mortgage glossary at the link below.

    http://www.mtgprofessor.com/glossary.htm

  10. Reply
    Quicken Loans
    January 21, 2011 at 6:49 am

    A fixed rate balloon mortgage has a fixed rate for an agreed period of time, after which, the entire loan comes due. So, at the end of 5 years, the remaining balance of your loan will be due in full. You will need to refinance prior to that happening if you do not have the funds to pay the loan in full.

    It’s a risky move and highly advised that you try and stick with a long-term fixed loan. Many markets are very volatile right now and riskier loans have been getting many consumers into financial trouble.

    Be sure you check out all options available to you before agreeing to one. Working with a large, national, direct lender is in your best interest.

    If credit is an issue, look into FHA loans. I’m including a couple links for you.

  11. Reply
    Big Deal Maker
    January 21, 2011 at 7:30 am

    As others have indicated to you that the full amount of the loan will be due at the end of 5 years.
    Then you will need to refinance the loan again. You will be stuck with whatever interest rates that would be current at that time.
    Want some advice? Do not get a loan with a balloon payment. Get a fixed rate for 30 years. If you can not afford that loan don`t buy the home.

  12. Reply
    lucky13darkangelblue
    January 21, 2011 at 7:48 am

    you will have a big payment due at the end of 5 years….

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