Let us analyze these two scenarios.
Balloon loans are mortgage loans that require you only to pay for the interests (and sometimes a small portion of the capital) till the end of the repayment program. Once the loan term finishes, you are required to put down a lump sum that is usually equal to the whole loan capital or a big part of it.
These loans are perfect for those who can not afford high monthly payments but from time to time have high incomes they can put aside into a savings account to cope with the lump sum payment when the loan term ends.
Refinancing Into Balloon Loans
Knowing what balloon loans are you can probably imagine in what situations it would be advantageous to trade in your outstanding mortgage loan in exchange for a balloon loan. Since balloon loans charge only small monthly payments, if you can no longer afford the monthly payments on your current mortgage due to being unemployed or due to any other unexpected circumstance that reduces your income dramatically, it is a good idea to refinance and obtain a balloon loan .
With the balloon loan you will be able to repay your current mortgage balance and obtain small monthly payments in return. You should bear in mind that even though the payments will be affordable, this loan requires a lot of discipline and the eventual recovery of your saving ability. Otherwise, when the time comes and you need to pay off the loan’s remaining balance, you may not be able to do so and you may risk repossession of the property.
Refinancing Out Of A Balloon Loan
If that happens or you just need a few years of low payments or you are currently on a balloon loan reaching the end of the repayment program and you fear that you will not be able to save enough money for the lump payment, it is time to refinance out of your balloon loan. By doing so, you will replace your current loan with a regular home mortgage loan with a longer repayment program.
This of course will imply that you will have higher monthly payments for a period of up to 20 years. You will have spent a lot of money in terms of interests with plenty more to pay over the whole life of the loan but you will get to keep your property and eventually fully own it when you repay the whole loan.
Refinancing out of a balloon loan is essential if you can not cope with the lump payment. In order to turn the transaction less expensive, if you do have savings, you can use them to make higher monthly payments and reduce the length of the new loan.
By: Jess Peterson
Posts Tagged ‘Current Mortgage’
Refinancing In And Out Of Balloon Loans
March 17th, 2010Refinance House Loans For Home Improvements
March 13th, 2010
There are many different situations that could require you to need to refinance your current mortgage loan. Refinancing your mortgage loan can do a couple of things, including:
* Freeing up equity in your home
* Refinancing to get a better interest rate
* Reducing how much you pay each month
You can also use refinancing to free up money in your home to spend on doing your home up. This is one of the most popular uses of refinance as it actually adds value to your home.
Home equity loans are used to provide guarantees to the lender, which should make it possible for them to offer you much better loan terms. Equity is simply the difference between the value of the house, and the amount of money you owe on the property. You’ve no doubt heard of negative equity, this is when you owe more than your house is worth. Fortunately this is not very common at the moment.
As the house is hopefully worth more than you owe there is more money that can be released from the property. By guaranteeing the loan against the home it reduces the risk for the lender.
Home equity loans can offer loan terms that are almost as good as other home loans. You can often get cheaper interest rate loans using home equity loans, you can also borrow larger amounts of money, and lower monthly payments.
Home equity loans can do all of this because the loan is secured against the property, therefore there is minimal risk for the lender.
Refinancing a home loan works by taking out a new mortgage loan, and using the money to repay the existing mortgage. These loans are actually known as a cash out home loan, this simply means that you are borrowing more money than you currently owe. The remainder of the money that is not used to pay off your existing debts is given to you as a lump payment. This is very beneficial for whatever you need to do, including home improvements.
If the money intends to be used for home improvements, then most lenders will offer special discount interest rates and other special terms. This is because spending money doing your home up should actually increase the value of your home, so meaning there is more equity in your home.
Make sure you mention you intend to use the money for home improvements when applying for you loan, as you want to benefit from any discounts you can possibly get. If you look hard enough you will be able to find a lender that can offer special offers that may suit your needs.
Many lenders nowadays are designing loan programs that are aimed at people who are doing their houses up.
The most important thing when taking out a refinance loan is not to go with the first one you find, you must compare options. Choosing the first option may not be the best choice, by getting a number of quotes, you may be able to negotiate.
By: David Faulkner
Refinancing Mortgage Loans – Good Or Bad?
February 8th, 2010
If you are a homeowner presently paying a fixed rate mortgage and when interest rates fall, you would be very much tempted to do refinancing mortgage loans. Unfortunately most people get into a mad rush, attracted only by the lower interest rates without considering the bigger picture. Here are some important tips that you should consider:
What Is A Refinance?
A refinance loan is a new loan that is taken up by the borrower primarily to pay off the original loan.
Tips To Consider when you refinance a mortgage loan
1. Before you consider switching out a fixed-rate mortgage for another type, make sure you completely understand the terms of the new loan. Some of the most important information affecting your decisions is found in the fine prints of your contract.
2. If your current mortgage loan is a long tenor loan e.g. 20 years, you may wish to consider if it is possible to have it restructured to a shorter loan instead e.g. 15 years. Taking off 5 years loan commitment can be good thing even if it means having to pay higher monthly interest.
3. Lenders prefer to structure your loans long term so as to increase their total earnings. For this reason if your refinancing mortgage loan is short term, lenders usually will charge prepayment penalty for your mortgage loan. It is important to read the agreement carefully to confirm if there are any such penalties imposed.
Some Disadvantageous to Refinancing
Costs
If you are required to pay upfront fees to obtain the refinancing loan you should calculate to find out if taking the new loan is a good decision for your financial appetite. Even with reduced monthly interest due to your new loan structure, these fees may make you financially worse off than had you not taken the new loan.
Extended Loan Life
You may have the option to shorten your loan tenor as you wish, but do take note that you may not necessarily get an increased loan payment from your new refinancing loan. This could result in you having to pay more monthly interest amount should you decide to shorten you loan repayment months. Also only you yourself can decide if you are financially capable to handle an increased monthly payment.
By: P Lee