In order to pay off your balloon payment when it becomes due, you have two options: either take up another mortgage in the amount of the balloon payment or sell your house and use the profits to pay off the balloon payment. Refinance your loan in order to save cash.
The Balloon Mortgage: What You Need to Know
For homeowners, balloon mortgages may be structured with varying terms and maturities, as well as fixed or variable interest rates, depending on the lender. Some short-term lending agreements may demand the borrower to make the first and most substantial repayments at the beginning of the credit agreement, with no amortization throughout the course of the credit agreement.
A balloon mortgage is typically for a brief period of time, ranging from five to seven years. There are no monthly payments on a property, if there are any at all, and they might be interest-only payments. At the conclusion of the term, the whole amount of the mortgage is due and payable.
Listed below are various alternatives to paying off a mortgage with a balloon payment.
Refinance the balloon mortgage to get a better rate.
If you want to avoid making a balloon payment, one option is to refinance your loan into another mortgage before the payment is due.
Pay down the balloon payment if you haven’t already.
Obviously, paying the balloon payment will result in the cancellation of the balloon note. Making the balloon payment may be accomplished in a variety of ways, including saving up a lump amount during the fixed payment term, utilizing anticipated funds, or borrowing cash to meet the balloon payment.
Sell the house as soon as possible.
Borrowers who are unable to make the balloon payment by the due date may be able to sell their home in order to avoid defaulting on their mortgage.
During the first term, you will be required to pay extra.
Assuming there is no prepayment penalty on the loan, paying more during the first period will lower the amount of principal owed at the conclusion of the loan’s maturity period.
Negotiate a longer period of time.
A balloon payment extension may be possible for homeowners who are unable to make the balloon payment on time. However, this alternative is likely to be accompanied by high costs and may only result in a short-term extension of the original period.
Meet Krishnaprasath Krishnamoorthy, a finance content writer with a wealth of knowledge and experience in the insurance, mortgage, taxation, law, and real estate industries. With 15 years of experience and qualifications in insurance, mortgage, law, and investments, Krishnaprasath Krishnamoorthy has a deep understanding of the complex financial and legal issues that impact individuals and businesses alike.