Understanding "Balloon mortgage"

Mortgage is a financing technique, opted by prospective home buyers for purchase of a real estate. This is an effort to acquaint you of a type of mortgage called as balloon mortgage.

(PRWEB) September 5, 2004 -- A prospective home owner should be thoroughly acquainted of the various types of mortgage products available in the market. Here is an effort to acquaint you of a mortgage type commonly known as balloon mortgage.

The word balloon in mortgage process means that there is a principal balance at the end of the loan term, which must be repaid. Balloon mortgage, alternatively known as balloon note or bullet note is a popular option and a real money saver for many home owners. It refers to a mortgage which has periodic installments for principal and interest, and the principal balance is due at the end of the specified time period. It is frequently described as a 5/25 or 7/23 mortgage.

Salient features of balloon mortgage are:
Balloon mortgage offers very low interest on the amount borrowed. It is a short term loan with a loan term ranging from five to seven years. Although, there is little or no equity build up, it requires lower monthly payments and offers full tax benefits. It requires a final "balloon" payment for the remaining balance of a mortgage. It often have a lower interest rate, and can be easier to qualify for, than a traditional 30 year fixed mortgage. If you do not have the funds to pay the baloon payment, you may have to refinance with the possibility of higher mortgage interest rates.

The following are the loan to value ratio for balloon mortgage:
For five years balloon (30 years )- The loan to value ratio is upto 80%.
For seven years balloon ( 30 years ) --The loan to value ration is upto 90%.

If you have any other queries related to mortgage, feel free to visit this site. http://www.mortgagekb.com

External resources:
1. http://www.mortgagekb.com/high-ratio.html
2. http://www.mortgagekb.com/market-value.html
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