Subject: Balloon Payment Mortgage

Balloon Payment Mortgage is a mortgage that usually requires a
lump sum payment at the end of the loan period because the loan is
not fully amortized throughout the term of the loan.

The payments are based on a 30 year amortized loan but the
remaining balance also known as the balloon payment of the 30 year
mortgage will come due in five to seven years, depending on the loan
agreement.

Often the lump sum is about 85% of the borrowed amount. The majority
of the payments made through out the loans life are applied toward
the interest.

Balloon Payment Mortgages are more popular with Commercial real
estate than that of personal or residential real estate.

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Borrowers who are unable to pay the balloon payment at the time
it's due, may be eligible for the conversion option or reset option
which fully amortizes the remaining balance at current
market rates, usually for another 23 years.

They may also opt for a conventional second mortgage,
which typically amortizes the loan for an additional 15 years.

If not, the borrower may apply for another loan to cover the balance
due or sell the property or in worse case scenario lose the home
through lender foreclosure.

Some conditions of the conversion option or reset option are the
following: 1) the borrower still owns the property, 2) has no
delinquent payments in the previous year (12 months), 3) has
no other liens against the financed property.

If you do not plan or are unable to pay the balloon amount at the
end of the term of the loan, you should begin to apply and plan for
refinancing as soon as possible to assure that you will be able to
refinance the loan before the due date of the balloon payment.

This also helps to cushion for the fluctuations of interest rates and
uncertainties.

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Balloon payments benefit the lender because they give the
lender extra security against risky interest rates but can be
risky within themselves if the lender is unable to pay the lump
sum at the end of the term of the loan.

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Thank you,

Max Taylor
http://taylor-marketing.blogspot.com