| What
is a Balloon Mortgage?
Balloon or
"reset" mortgages have monthly mortgage payments based
on a 30-year amortization schedule, and you have a choice at the
end of the 5- or 7-year term to either pay off the remaining
balance or reset the mortgage. So you have the advantage of a low
monthly payment, like someone with a 30-year loan, but you must
pay off the loan at the end of the specific term you chose.
Many balloon mortgages have
a "reset" option. That means you can reset the interest
rate of your mortgage to the current market rate for the remainder
of the amortization period. This option is typically only
available if:
- You're still the owner
and occupant of the home.
- You've paid your
mortgage on time for at least a year prior to the balloon note
maturity date.
- You have no other liens
against the property.
- If you do not qualify
for a reset, you may qualify to refinance your balloon/reset
mortgage.
What the numbers mean.
There are 2 types of balloon/reset mortgages: 7/23 and 5/25. The
two numbers together are the total number of years (30) the
payments will be based on. The 1st number (7 or 5) is the number
of years before the balloon maturity date. The 2nd number (23 or
25) is the balance of the term.
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