Month: July 2019

Of the three mortgage types – fixed, adjustable, and balloon (all of which I can offer you) – the most familiar is probably the fixed rate loan.

With a fixed rate loan, your mortgage payment is the same each month, excluding taxes and insurance, throughout the life of the loan.

The ARM, or adjustable rate mortgage, has an initial fixed rate period and then becomes subject to change based on whatever economic indicator it is tied to.

The third type, the balloon loan, is a little bit different from the fixed rate loan and the ARM. The rate is fixed through the balloon period, which can be between three and 10 years. That’s simple enough so far.

But there’s a twist: At the end of the balloon period, the entire remaining balance of the loan is due to the lender.

At this point, if you are still living in the property, one option is simply to refinance the loan.

So why would anybody ever want a balloon loan?

Let me explain.

Just as with other types of loans, there are pluses and minuses to a balloon mortgage.

The plus side is that you can get a balloon loan at a lower rate than you can get a traditional 30-year fixed rate loan, which means you’ll have lower payments.

The minus side is that at the end of the balloon period, when you are in the position of having to refinance, you are subject to whatever interest rates are available at that time.

The new rates could be lower or higher than what you were previously paying. Nobody knows, especially three to 10 years out.

For this reason, this is a great option to explore if you’re planning to finance a home and are absolutely sure that you are going to be out of the property before the balloon period ends.

Is this a good choice for you? Give me a call, and we can review your options.

The short answer to this question is that nobody, including mortgage professionals like me, can predict where interest rates are going. Any lenders who tell you that they can predict this are misinforming you and should be avoided at all costs.

The fact is, in our age of instant information, consumers and mortgage professionals typically have access to the same market information.

What factors should we consider as we review this information? Interest rate fluctuations can occur due to both domestic and foreign activity. US sources of rate changes may include the revelation of some key economic statistic such as job reports, or changes made to interest rates by the Federal Reserve Board.

Foreign influences may include wartime events such as invasions, or other destabilizing events such as impacts on oil supplies.

Part of the challenge in all of this is that buyers who are in the process of purchasing a home only have a short window in which to lock in a rate. Buyers want to know, on a daily basis, what rates are doing, and they can look to their lender for direction. But at the end of the day, this is the buyer’s decision alone. Since no one can say for certain where rates are headed, if buyers have access to a good rate, it could be a good time to jump on the opportunity.

It’s also important to note that many lenders allow buyers to lock in a rate only once they are approved. Why? It’s costly for lenders to lock in a rate for buyers when there is still some question as to their ability to qualify.

To lock in a rate as soon as possible, buyers should submit any requested information and documents as quickly as they can. By working with us to keep things moving, buyers can enjoy a smoother transaction.