The payment calculation of a balloon mortgage is identical to a fixed-rate mortgage, usually a 30-year Fixed Rate Mortgage. However, this is all they have in common. If a conventional Fixed Rate Mortgage is expected to be repaid in 30 years, the completely amortizing final payment on a balloon mortgage is due at the end of the 5th or 7th (depending on the contract) year. For 5 (7) years your monthly payments are equal to those of a 30-year Fixed Rate Mortgage, which usually means lower interest rate, a stable predictable amount to pay, no fuss about the market changes in interest rates, the balance of your mortgage is gradually decreasing. This heaven ends when the payment day comes. You have to pay off the 25-year-big remains of your debt in one go. Here I want to note, that the payments you have been making for 5 (7) years have not decreased your balance significantly, as in any Fixed Rate Mortgage’s early years the proportion of money paid towards the interest is a lot higher than the amount paid towards the principal. Now, how good or bad is it?

It can be pretty good, actually, if you are in a situation for which a balloon mortgage can be recommended: you were not planning to own the property longer than 5 (7) years and you stuck to the plan.

In all other “inadvisable” situations you do have to either pay off somehow or refinance. Leaving the pay off option to your personal creativity, I will say a few words about the refinancing. Read the rest of this article »

A mortgage will become your biggest debt in years! For most people it is true, but it not as scary as it may sound. When you have the knowledge, when you understand what exactly is going on, when you are in full control of the situation – trust me, it is not scary!

I am here to share all the knowledge of the matter I have, with you.

We’ll start with the general idea of the most frequently used mortgage programs.

The two fundamental types of mortgages are the Fixed Rate Mortgage and the Adjustable Rate Mortgage. They both are amortized mortgages, which means that you have to repay the money you borrow (the principal) plus the interest on this money. As the name suggests, the Fixed Rate Mortgage provides the comfortable stability of a fixed interest rate – no matter what, you always know that you will not wake up one day to find out that your debt has unexpectedly doubled. If you have a stable job and your income flow is smooth and steady – this kind of mortgage can be for you. The only problem is that its Interest Rate may be higher than the Interest Rate of an Adjustable Rate Mortgage. You have to pay for the comfort, but it may be well worth it, if you don’t feel very adventurous about your finance.

An Adjustable Rate Mortgage usually looks very appealing in the beginning Read the rest of this article »