Paying a loan back can be the foremost concern on your budget. If you are thinking about home loans, you may opt for a balloon payment. With banks like columbia bank Marlboro, you can go ahead and finance your dream home with a loan.
Instead of paying in timely installments over the years, you can use a balloon payment or a balloon mortgage to pay your loan amount. Read ahead to find out how a balloon payment works.
Balloon payments and how they work
It may take about 30 years or more for you to pay your installments in a regular loan payment plan. You will have to pay regular installments to your bank with a balloon payment only for five to seven years. Following this period, you can pay the balance in one go. This is a large balloon payment.
There are rather risky loans, and a homeowner must be confident that they can pay it off. You cannot wait for the value of the home you purchased to appreciate and bank on that to pay the loan off.
If the property you buy fails to appreciate, you will not be able to pay the balloon payment unless you have other financial resources to do so.
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Risks of a balloon payment
Opting for a balloon payment can make a mortgage seem very affordable. It may seem like the loan payer can sell the property if he or she cannot procure the amount necessary for the balloon payment.
This may be seven years down the lane. If the property market is falling, this can prove quite troublesome for a loan payer.
A balloon payment is a rather attractive offer for anyone buying a home. If you are opting for one, pay attention to its benefits and risks first.