A
balloon payment mortgage
is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a
balloon payment
because of its large size. Balloon payment mortgages are more common in commercial real estate than in residential real estate. A balloon payment mortgage may have a fixed or a floating interest rate.
An example of a balloon payment mortgage is the 7-year Fannie Mae Balloon, which features monthly payments based on a 30-year amortization. In the United States, the amount of the balloon payment must be stated in the contract if Truth-in-Lending provisions apply to the loan.
Because borrowers may not have the resources to make the balloon payment at the end of the loan term, a "two-step" mortgage plan may be used with balloon payment mortgages. Under the two-step plan, sometimes referred to as "reset option", the mortgage note "resets" using current market rates and using a fully-amortizing payment schedule. This option is not necessarily automatic, and may only be available if the borrower is still the owner/occupant, has no 30-day late payments in the preceding 12 months, and has no other liens against the property. For balloon payment mortgages without a reset option or where the reset option is not available, the expectation is that either the borrower will have sold the property or refinanced the loan by the end of the loan term. This may mean that there is a refinancing risk.
Adjustable rate mortgages are sometimes confused with balloon payment mortgages. The distinction is that a balloon payment may require refinancing or repayment at the end of the period; some adjustable rate mortgages do not need to be refinanced, and the interest rate is automatically adjusted at the end of the applicable period. Some countries do not allow balloon payment mortgages for residential housing: the lender
must
continue the loan (the reset option is required). To the borrower, therefore, there is no risk that the lender will refuse to refinance or continue the loan.
References
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a
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c
d
Wiedemer, John P,
Real Estate Finance, 8th Edition
, p 109-110
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Fabozzi, Frank J. (ed),
Handbook of Mortgage-Backed Securities, 6th Edition
, p 1125
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7-year Balloon Mortgages At A Glance (PDF)
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Balloon/Reset Mortgages
discokevin2001
asked:
"I have worked in the mortgage industry for many years. So correct me if I am wrong, but as long as you make your P&I on the mortgage every month, they cannot report you to the credit bureau. I am fighting my mortgage company on the amount of escrow being added to the payment, and don't want to over pay into my escrow account any longer."
Question posted courtesy of:
starry82nite replied:
"Depending on the state you reside in-if you signed an escrow disclosure statement clearly indicating all the impounds during closing & your LTV is greater than 80%, the mortgage company can asses you late fees & report you to the credit bureau. Double check your current LTV/CLTV's & look into escrow waivers. Good Luck."
Paul C replied:
"The escrow payment is included in the payment, if you make a lesser payment you'll be delinquent on your home. If you're delinquent they'll report it. The only way to get out of it is to refinance into a loan that you're not escrowing if possible."
Real Estate Guy replied:
"Your payment is the PITI. What is the problem with escrows. Show the lender your insurance bill and your tax bill. These are the amounts that you owe."
tristalelyn
asked:
"My husband left active duty military and went back to the reserves. We took a 3,000 dollar a month paycut and are having trouble making our mortgage payments. We've had the house for 2 years and it's a VA loan. Are there any mortgage payment assistant programs to people like us here in Colorado? We are trying to avoid foreclosure at all costs. If we could get help with the payments until it sells (houses aren't selling in our neighborhood right now) we could avoid a big headache for us in the future. Anywhere we can turn to?By the way,No he was forced to quit active duty because he tore his ACL in PT and Tricare waitlisted a surgery and then said they wouldnt fix it. HE DID have a full time job waiting for him once he was off active duty but because of his knee not being able to be fixed, the couldn't bring him on board as a police officer. He is currently working 2 jobs, and SO AM I despite the fact we have a 1 year old. We are overworked and getting sick and still cant make up the 3000 dollars nor afford to fix the knee. We are NOT hillbillies who dont pay our bills. We each work 60 hours a week between both of our jobs."
Question posted courtesy of:
Jig replied:
"Hi,Yes, there are a few options for you. Checkout for some useful info and tips on the matter. Good luck!"
Mary B replied:
"You wouldn't qualify.Your husband didn't lose his job, he quit his job, there is a HUGE difference.Sorry to sound harsh, but programs weren't designed for that purpose. The smart thing to have done is to have had a full time job BEFORE he left active duty military.Is he even looking for a job? Are you? Is there a reason why one or both of you can't work two jobs?The reserves is only one-weekend a month...where did he think the money was going to come from?"
NeedInfo06
asked:
"Can somone show me how to calculate a mortgage paymentlike for examplewhat is the monthly payment on a $200,000 mortgage at 6% interest over 25 years?Can somone show me how to calculate a mortgage paymentlike for examplewhat is the monthly payment on a $200,000 mortgage at 6% interest over 25 years?I need to know how to do the mathematical calculations, don't just give me the anwser."
Question posted courtesy of:
Paul C replied:
"1288.60"
tikki replied:
"I'm not exactly sure off the top of my head without using a mortgage calculator but, someone has told me to just say 1% will be your mortgage payment. So with $200,000 mortgage i would estimate your payment to be 2000/mth."
xavier p replied:
"With mortgages, we want to find the monthly payment required to totally pay down a borrowed principal over the course a number of payments.The standard mortgage formula is:M = P [ i(1 + i)n ] / [ (1 + i)n - 1]Where M is the monthly payment. i = r/12. The same formula can be expressed many different way, but this one avoids using negative exponentials which confuse some calculators."
shell replied:
"1288.60 but that doesn't include taxes or insurance. This is just P&I. Also take in account if you have HOA dues."
wifey replied:
"Easiest way to do that is to take the purchase price of the house and divide it by 100. The figure will be very close to your mortgage amount including property tax and insurance if you were paying roughly 9% interest. It's good to figure it this way too, because then you've estimated on the high end, so you know it will be less than that. If you're getting a 5% interest, than divide your figure by 50."
NevadaHomes replied:
"Hi NeedInfo06,Microsoft Excel has an amortization table template that you can use. If you do not have in your computer, go to Microsoft's website. Type amortization table in the search bar. Download it from there."
Tony Q replied:
"monthly payment = interest portion + principal portion m1=12 in us the interest is compounded monthly(in canada m1=2, interest is compounded semi-annual)m2=12 payment every monthYR=25%int=6 percent annual interestn= m2 * YR = 12 * 25 = 300int=%int / 100 / m1 = 6 / 100 / 12 = 0.005INT = (1 + int) ^ (m1 / m2) -1INT = (1 +0.005) ^ (12 /12) -1 = 0.005PV = loan = 200,000F1 = interest portion of mortgF1 = PV * INT = 200,000 * 0.005 = 1000F2 = equal monthly payment factorF2 = 1 - [1 + INT] ^ [ - n ]F2 = 1 - [1 + 0.005] ^ [ - 300 ]F2 = 0.77603432PMT = monthly payment = F1 / F2 = 1000 / 0.77603432PMT = 1288.60"
honeybear
asked:
"I got a letter in the mail from the bank that says paying our mortgage payment bi-weekly instead of monthly could save us $40,000 to $100,000 in interest and reduce our mortgage term by 7 to 9 years without refinancing. How does this work?"
Question posted courtesy of:
engineer50 replied:
"It reduces the amount of interest you pay by paying down the principal sooner."
teodor d replied:
"I am currently taking a finance course that discusses mortgages as well. We have a mortgage loan officer in our course and he explained to us this concept last week. This is what happens:A. You end up paying more of your principal sooner and therefore pay less interest over the period of the loan because 1/2 of your payment only gathers 15 days of interest and not 30.B. The other issues is that if you make payments biweekly you end up, normally, having a higher monthly payment. A year has 52 weeks so you would end making 26 payments which would equal 13 months worth of payments in a year.if you can afford it, definately choose this option and choose a 15 year versus a 30 year mortgage.best of luck."
ijokey2000 replied:
"Teodor has the correct answer, but I will add to it That you can do this on your own. You do not have to pay a 3rd party to set this up. You can coordinate this with your mtg co. Also when you make extra payments to the principle, make sure you do so with a separate check and specify that it is to be applied to the principle."
bdancer222 replied:
"The "interest on 15 days instead of 30" isn't always true. Many mortgage companies who offer this program just hold the first half till the second half arrives. The mortgage company might make some interest, holding all those half payments for 15 days, but you don't.The real benefit is that paying every 2 weeks make for 13 months. You make an extra payment which goes right to the principal. You don't need to pay the mortgage company the $300 or $3000 (whatever the current fee) to set this up. You can pay extra on your principal anytime you want. Even paying as little as $10 every month will shorten your loan."
James T
asked:
"I'm in the first steps of buying a condo, and I'm a bit confused as to what a larger/smaller down payment actually does to the mortgage payment. In all of the mortgage payment calculators I've gone to online, increasing or decreasing the down payment has no effect on the monthly payment and only decreases the term. I am confused because I set the term to 30 years, but its still changing the life of the loan."
Question posted courtesy of:
IVA BEN replied:
"The larger your down payment, the less your loan will be and the less your payments will be."
busymomkaren replied:
"the larger your down payment, the smaller the monthly payment. the loan calculators assume you want to keep the same payment, so they are actually telling you how long it will take to pay it off at that payment. You actually save ALOT of money with a real big down payment, because you pay less interest."
wcowell2000 replied:
"First, the idea of a condo in this current market is not wise. They are a dime a dozen and unless you are stealing it then it is bad idea. Trust me. I do foreclosure bulk sales for a living and we can't give condos away.As far the effect on your payment, the rule of thumb is $7 per thousand. Put ten thousand down and the payment drops about $70 a month assuming an interest rate around 7%.I hope this helps."
DennistheMenace replied:
"if you can put enough down to shortinup the term, 20-30%...the only time youll ever see what your saving, is on paper before you sign on the dotted line....do the math, see what you can live with, and remember the future....."
heyteach replied:
"Larger downpayments decrease the monthly payment and total payment over the life of the loan.Also if you do not put down at least 20% you will have to pay PMI--private mortgage insurance--which is for the benefit of the lender NOT you.I wonder if you arrowed back to enter a different term or something that made the calculator not work. Or did you have a fixed monthly amount that was set when you used the calculator? Something went awry."
Mortgage Expert replied:
"As others have answered, it will reduce the payment however, I want to mention that you have to find the right balance on how much you want to put down. I can help you do that. Just visit the site below and fill out the sort form on the main page."
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Calculators for amortization, refinancing information, monthly payments, and more.
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