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The Balloon Mortgage - Sounds Interesting . . .

If you are planning to purchase a home without intending to live in the home for more than five years, a balloon mortgage may be a good option. Balloon mortgages are a loan to purchase a home where you pay fixed monthly payment amount for a set amount of time and then the entire balance of the loan becomes due after the time limit is up.

So if you are wondering why it would be beneficial for you to take out a home loan where after a few years you would be forced to pay the entire balance of the loan back, here are some reasons and situations in which a person would benefit from a balloon mortgage:

• Lower interest rates are offered on balloon mortgages than traditional fixed rate mortgages. Because the mortgage loan is for such a short period of time the interest rates are usually low.
• If you are planning to refinance when fixed interest rates are lower. Some people use balloon mortgages to get better interest rates in order to wait for a time when the market yields lower interest rates for fixed loans and then they refinance thei balloon mortgage.

No matter what your situation is, if you do choose to get a balloon mortgage make sure you have a plan for selling the home, refinancing the loan, or somehow paying the large balloon principal amount when the loan comes due. Remember that it is hard to predict how long it could take your home to sell, so have a back up plan if you have a balloon mortgage..