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trayrod
LIF Infant
Member since 5/05 73 total posts
Name:
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Balloon Payments???
Has anyone bought a house this way?? Can anyone list pros and cons? This was recommended to me by someone at work and I am a bit leary of it.
Thanks so much!
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Posted 10/18/05 11:06 AM  |
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CookiePuss
Cake from Outer Space!
Member since 5/05 14021 total posts
Name:
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Re: Balloon Payments???
I'm not all that fimilar with Ballon Paymets in regards to a mortgage but I would be careful. With a Ballon Payment, you can to come up with a large sum of money at a specified date. If you don't, you will have to finance that payment which could be at higher interest rates. I haven't heard of any Ballon Payment type mortgages. I would research it a lot before you took one out.
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| Posted 10/18/05 11:36 AM |
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Diane
Hope is Contagious....catch it
Member since 5/05 30683 total posts
Name:
D
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Re: Balloon Payments???
Not sure with a house, but a friend of ours did that for a car, and they got caught with a LARGE payment at the end, and they couldnt afford it so they had to sell the car.
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| Posted 10/18/05 1:14 PM |
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DjPiLL
Member since 5/05 3664 total posts
Name:
Richard
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Re: Balloon Payments???
I think the better question is WHY would you want to do a balloon payment loan?
What makes you think this is better than say a 30yr fixed or 5/1ARM?
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| Posted 10/18/05 1:24 PM |
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june262004
But I love the Snow!
Member since 5/05 15379 total posts
Name:
Kristin
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Re: Balloon Payments???
Ive never heard of a balloon Payment on a house. I think its kinda silly. 
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| Posted 10/18/05 1:26 PM |
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Re: Balloon Payments???
You would need to refinance or sell the house before the balloon payment hits b/c it will be a huge amount. If you are POSITIVE you will move or refinance before that date, then it may be okay, but if you are a little unsure, its a bad idea. A 5yr arm would be better.
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| Posted 10/18/05 1:59 PM |
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trayrod
LIF Infant
Member since 5/05 73 total posts
Name:
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Re: Balloon Payments???
Posted by DjPiLL
I think the better question is WHY would you want to do a balloon payment loan?
What makes you think this is better than say a 30yr fixed or 5/1ARM?
I didn't say I thought any way was better, just that someone mentioned it as an option and that I was looking for info.
Thanks everyone for your feedback. I still have a lot of research to do on house buying.
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| Posted 10/18/05 4:21 PM |
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DjPiLL
Member since 5/05 3664 total posts
Name:
Richard
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Re: Balloon Payments???
The only reason why someone would do a balloon payment mortgage... was to get a lower initial monthly payment.
Most people that do this... do it because they can't afford the payments of a normal 30yr fixed.
If thats the reason for doing it... the person is most likely buying beyond their means.
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| Posted 10/18/05 6:58 PM |
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neenie
Member since 5/05 22351 total posts
Name:
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Re: Balloon Payments???
Posted by DjPiLL
The only reason why someone would do a balloon payment mortgage... was to get a lower initial monthly payment.
Most people that do this... do it because they can't afford the payments of a normal 30yr fixed.
If thats the reason for doing it... the person is most likely buying beyond their means.
just wanted to add onto this too.... alot of people that Already Own homes and are in jeopardy of having their house foreclosed on do this basically as a last resort to buy more time. i've never really heard of a very positive situation where people chose to do it b/c it was a better alternative. Honestly, if my only options were to either 1. Get a house with a Balloon mortgage or 2. not be able to buy at all.... i would hold off on buying.
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| Posted 10/18/05 7:13 PM |
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PiyoPika566
talk to the hand
Member since 5/05 1436 total posts
Name:
Stephanie
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Re: Balloon Payments???
I agree with all that's said... this type of payment is very risky...
I went to see a house that on the listing it said the owner will finance and balloon at end of 3 yrs.. I was very confused and asked the agent what that means, after she explained to me, I asked myself why would anybody want to do that? How can you be sure you'll have 300-400k to pay at the end of 3 yrs? If you don't you will be in serious trouble to loose your house....
purchasing a home for you and your family is a huge decision, why would you want to risk it losing it later?
Your best bet is a conventional mortgage, or ARM.
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| Posted 10/18/05 7:32 PM |
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patti08
Happy
Member since 5/05 3893 total posts
Name:
Patti
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Re: Balloon Payments???
We have it for our second mortgage, it's a fairly low amount. (Under 100K) We took the second mortgage to keep from paying PMI.
It's a 15 year fixed rate loan with a baloon payment at the end. We pay monthly payments at the amount they would be if it was a 30 year loan (so they are lower) and we have a baloon payment at the end.
This gives us a disposable income at a level that actually allows us to pay off the loan in 2 years.
If something major happens and we can't prepay the loan, we will refi around the 10 or 12 year point and have no worries about a baloon payment.
Message edited 10/19/2005 11:52:44 AM.
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| Posted 10/19/05 11:51 AM |
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DjPiLL
Member since 5/05 3664 total posts
Name:
Richard
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Re: Balloon Payments???
A balloon payment on a second mortgage isn't that big a deal.
But a balloon schedule on your primary mortgage can be very bad. Keep the following in mind. Most people feel that "well i'll just re-finance down the road to get a lower rate".
Well first off... you have no idea where the interest rates will go down the road. Most likely up.
But the bigger issue is... you have no guarantee you will be in the same financial situation a few years down the road that you are at now. Lets say both husband and wife are working and to calculate your DTI you are using both salaries. Fine you can get a mortgage now. What happens if wife wants to be SAHM. Your DTI will significantly jump up because of this. What happens if the money maker of the household gets laid off and can't find another job at the same pay rate? In both of these scenarios... you may not get approved for a refinance (even if you already own).
At least if you get your 30yr fixed (or even an ARM) now... you can get laid off... make half of what you are making now... but you don't have to worry about losing the mortgage if you can still manage the payments.
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| Posted 10/19/05 1:22 PM |
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patti08
Happy
Member since 5/05 3893 total posts
Name:
Patti
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Re: Balloon Payments???
Agreed. We never would have done it with our primary mortgage. Our plan is to wait to have a baby until after it gets paid off (2 years) so that I can be a SAHM for a few years. Once it's paid we have a very comfortable amount back in our pockets each month.
The amount of the loan is actually low enough that we could sell an asset to pay it off if we had to.
The fact that we have that security, and to maximize the tax benefit for the first few years is why we did it. I definitely wouldn't recommend it for everyone.
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| Posted 10/19/05 2:01 PM |
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Erica
LIF Adult
Member since 5/05 11767 total posts
Name:
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Re: Balloon Payments???
it sounds like an interest only loan - which are usually for people who are SURE their income will be increasing in the next few years (i.e. a SAHM going back to work)
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| Posted 10/19/05 2:14 PM |
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DjPiLL
Member since 5/05 3664 total posts
Name:
Richard
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Re: Balloon Payments???
Posted by Lilith
it sounds like an interest only loan - which are usually for people who are SURE their income will be increasing in the next few years (i.e. a SAHM going back to work)
Its nothing like an interest only loan. Yeah both have small payments in the beginning... but thats about it.
An interest only loan has small payments throughout the life of the loan (based on prime or fixed rate). I can see IO being good for the SAHM returning to work example like you said above.
But again... balloon scheduling would not work here either. You would still have to re-fi. Re-fi's cost money. If you can get a good rate on an IO loan and you are a SAHM going back to work soon... the IO loan could work out ok.
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| Posted 10/19/05 2:23 PM |
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cjb88
Little Brother
Member since 5/05 3540 total posts
Name:
C
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Re: Balloon Payments???
Posted by patti08
We have it for our second mortgage, it's a fairly low amount. (Under 100K) We took the second mortgage to keep from paying PMI.
It's a 15 year fixed rate loan with a baloon payment at the end. We pay monthly payments at the amount they would be if it was a 30 year loan (so they are lower) and we have a baloon payment at the end.
This gives us a disposable income at a level that actually allows us to pay off the loan in 2 years.
If something major happens and we can't prepay the loan, we will refi around the 10 or 12 year point and have no worries about a baloon payment.
we have one on our second mortgage also...
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| Posted 10/19/05 2:58 PM |
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trayrod
LIF Infant
Member since 5/05 73 total posts
Name:
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Re: Balloon Payments???
Thanks again, you all have been very helpful and informative. I spoke with my aunt (who I forgot was a realtor  ) and she gave me a lot of great information too. She is going to really help us out when we are ready to start seriously looking 
Message edited 10/19/2005 3:43:29 PM.
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| Posted 10/19/05 3:43 PM |
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CookiePuss
Cake from Outer Space!
Member since 5/05 14021 total posts
Name:
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Re: Balloon Payments???
Just keep in mind...all these "fancy" mortgages have been traditionally used for real estate investors for their real estate investments. These types of mortgages weren't designed for primary residence mortgages. The reason for their popularity has been because people have started using them to buy homes out of their price range should they have used a traditional mortgage. I think it's really important that you understand the lender's logic behind these loans.
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| Posted 10/19/05 4:28 PM |
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