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A balloon mortgage is one in which monthly payments are made for a pre-determined period of time, with the balance of the loan paid in full at the end of the loan term. Like an ARM, interest rates on a balloon mortgage are typically lower than on a fixed rate mortgage and this makes the monthly payments on a this type of mortgage are very low and affordable. Balloon mortgage loans are calculated to amortize over a longer period than the due date of the balloon. A balloon, or lump sum, payment is required at the maturity of the loan to completely pay off the remaining principal. Therefore its important to keep in mind that the terms on a balloon mortgage are insufficient to completely amortize the loan.

Balloon mortgages can, and often do, contain a contractual opportunity to refinance at prevailing rates when the balloon payment is due. If the balloon mortgage loan has the option to be refinanced when the initial period expires, it will be called a convertible balloon mortgage. Some balloon mortgages come with “reset” clauses that provide for the original lender to reset the loan terms so that the loan is fully paid off in the remaining twenty three to twenty five years. The advantage of a balloon loan with a reset is that the loan payment will remain constant for the remaining life of the mortgage. The disadvantage is that the borrower is subject to the then current rates. If you are unable to convert or refinance the balloon mortgage, you may be forced to sell your home to make the loan whole. However, for the initial period of the loan, the interest rates on a balloon mortgage are usually a little lower than a comparable Adjustable Rate Mortgage.

Alternatively, with a fixed-rate mortgage you’ll have the benefit of knowing exactly what your monthly payments will be for the entire term of the loan. Because few people have the funds to fully pay off the balance due at the end of the balloon term, when using a balloon mortgage as the instrument of financing, the borrower should be concerned about future interest rates because they will be subject to them when the loan matures. However, most people that take out balloon mortgages assume that they’ll be moving within the term of the balloon period or that they will be eligible for a more attractive loan at the end of that period. Many people also use balloon mortgages to get that larger dream house. This strategy can, in fact, be fairly risky and a borrower should consider the market risk against the benefit of a larger home. Again, at the end of that period, the borrower must pay off the loan in full – this is the “balloon” payment. For example, a 7 year balloon calculated to amortize over 30 years will have low payments for 7 years and then the remaining balance will be due.

Before borrowing it’s important to consider whether you already have too much debt, whether you will be able to service the debt if you refinance at the end of the balloon period (or pay the balance), the risks associated with the current real estate market, and other factors as well. While it can be fairly easy to make the monthly payments on a balloon mortgage, it is very important to consider that there could be difficulty in managing the terms of the loan once it matures. In the current climate, fixed-rate mortgages are definitely the “loan of choice” for homeowners seeking a refinance mortgage, but if all the factors are considered and risks weighed, a balloon mortgage can be a viable alternative. Loan programs vary depending on the borrower’s credit, closing costs vary from state to state, work with your loan officer to get a proper estimate when you apply for your loan.

When Marcia Blackwell and her husband Tom founded Blackwell's Organic Gelato in 2005, they did what many small business owners do: They funded their efforts with a home equity line of credit. The interest rate was then about half that of a traditional business loan, even one backed by the Small Business Administration, and the money was available fast.

An increasingly  popular alternative to foreclosure is the loan modification, an agreement where the bank and borrowers reduce the cost of the loan for a period of time to allow payments to be made on time.  A loan modification is much like a mortgage refinance in that the objective is to find you a more affordable mortgage payment for your financial situation.  Refinancing your existing mortgage to obtain a more affordable mortgage payment could still be an option.  However loan modification is often the best solution for the homeowner that has incurred a financial hardship that prevents other mortgage financing or payment options. The purpose of a loan modification is to help make the loan more affordable to the borrower.

A Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.  Loan modification is a relatively new term for most people, but with the current market conditions and mortgage crisis, it is becoming increasingly popular.  When possible, loan modification is a preferable alternative to bankruptcy.  Additionally, loan modification is a more fiscally  attractive solution for any lender.

Loan modification programs are typically designed for homeowners who are having difficulty making their mortgage payment, but who can’t qualify to refinance their mortgage.  Loan modification may include reducing the interest rate, extending the term of the loan from 30 to 40 years, or adding missed payments to loan balance.  Loan modifications are not the same as debt consolidations, refinancing loans, or even forbearances.  Loan modifications stop foreclosure proceedings and instead reinstate the loans as they are being modified.

The lenders motivation in modifying a loan is that this is a better alternative to foreclosure.  However, homeowners today are under the false impression that they cannot apply for a home loan modification if they are not in foreclosure.  A loan modification allows the lender to transform a non-performing asset into a performing one and avoid the cost of foreclosure.  The bottom line is that a loan modification is intended to reduce the payments for the borrower, make it more affordable, and reduce the risk that the homeowner will default on the loan.

So here again, loan modification is preferable, in that a renegotiated loan agreement allows you to keep paying down your monthly mortgage while maintaining your credit rating.  Whether it’s reducing the borrower’s note rate or monthly payment, or extending the maturity date, a loan modification is a possible option for a borrower in default.

Understanding the plight facing homeowners today and the very real threat of foreclosure,  assistance during the process of applying for a loan modification is essential. It is important to make the lender work with the homeowner to provide the best possible solution before it is too late.  In the final analysis, loan modification is usually preferable to filing for bankruptcy and is a fundamentally sounder strategy than defaulting on the entire mortgage and creating costly foreclosure proceedings.

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30yrFXD:5.47,15yrFXD:5.2,5yrARM:5.82,1yrARM:5.09

Refinancing is often considered one of the most beneficial ways to save money on your home mortgage.  Refinancing is when you renegotiate the terms of a loan, essentially the refunding or restructuring of debt with new debt, equity, or a combination of both.  Refinancing is basically taking a new mortgage to replace an old one.  Refinancing is often the best way to save money, get a lower interest rate and a lower monthly payment, or keep the monthly payment the same and have a shorter loan term.  Refinancing is used in most cases to improve overall cash flow.

There are many things that play a role in whether or not refinancing is a good move.  Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance.  Sometimes, refinancing is an appropriate way to resolve financial problems.  Refinancing is not advisable if you plan to move in next few years, because the price that you pay for the refinance will just reduce or negate the savings that you get from the interest rate or lower monthly payment.  Another obstacle to refinancing is the current slump in the housing market where values of many homes have decreased to below their purchase price.  If cash flow is an issue and refinancing isn’t available, try to work out a plan with your lender to modify your current loan that would allow you to make either a smaller payment, or to miss a payment until you have the funds.

In the context of personal finance, refinancing a mortgage can be used to pay off high-interest debt such as credit card debt.  Debts can be paid and revolving accounts satisfied so that the homeowners credit is not ruined.  If the borrowers have wisely used their time and opportunities to establish a positive credit history, this should be a benefit to them.  You may be able to secure a lower interest rate because of changes in the market conditions or because your credit score has improved.  If your credit points have been decreasing in recent years, lenders may not endorse the refinance.

Refinancing may be undertaken to reduce interest rates, to extend the repayment time, to pay off other debt, to reduce or alter risk (such as by refinancing from a variable-rate to a fixed-rate loan), or to raise cash for investment.  As part of the mortgage refinancing process, various information that was required for your first mortgage will again be needed (such as your financial records and credit reports for you new loan report.)  You should know how much you will pay in all (interest and principle together) as well the term over which you will be making payments.  Interest rates and number of credit points determine the total cost for a second mortgage refinancing.  Most refinancing lenders offer a variety of combinations of points and interest rates.  Paying more points typically allows one to get a lower interest rate than one would be capable of getting if one paid fewer or no points.  A general role of thumb is that refinancing becomes worthwhile if the current interest rate on your mortgage is at least 2 percentage points higher than the prevailing market rate.  The average cost of refinancing is usually in the range of three- to six percent of the value of the loan, plus any prepayment penalties and charges associated with paying off any second mortgages that may exist.

Though banks have been directed to tighten their credit purse strings by stiffening their loan qualification criteria somewhat, as long as homeowners have done their part by paying their mortgages on time, it’s likely that they’ll have very little trouble finding a lender to accommodate their wishes.  If you decide that refinancing is not worth the costs, ask your lender whether you may be able to obtain all or some of the new terms you want by agreeing to a modification of your existing loan instead of a refinancing.  Whether refinancing is right for you depends upon your own personal situation with regard to your financial objectives and goals.