Balloon Mortgage Calculator
In relation to mortgage, you may come across with the term – balloon mortgage, kind of mortgage loan which combines low monthly payments and large final payment which is known as the balloon payment. In this blog post, you will learn what a balloon mortgage is, how you can use a calculator to find out the details, and pros and cons of such a mortgage.
What is a Balloon Mortgage?
A balloon mortgage is then kind of mortgage that has a one-time payment at the end of the loan period which is larger than usual. Such payments are smaller than the payments of a fixed-rate mortgage, since IVA monthly payments are based on the fact of longer time of repayment, but the amount of the outstanding balance must be paid in full at the end of the chosen term.
Balloon mortgage or balloon financing refers to a mortgage loan where the monthly payments are used to pay the interest for a fixed term whereas a large lump-sum payment referred to as the balloon payment, is made to repay the the entire remaining balance of the mortgage.
How Does a Balloon Mortgage Work?
For instance, if you secure a $100,000 mortgage at an interest rate of 4% with a five-year balloon term although the monthly instalments are computed under the assumption of a 30-year legal amortization, you will have to pay more than $ 477 monthly to the creditor. As for the total amount to be paid, under the amortization, you would pay only around $362.88 every month for five years and you would still owe for about $90,448 as the final payment.
What is a Balloon Mortgage Calculator?
A balloon mortgage calculator is a simple device that assist in perusing the expertise of such a kind of loan. Depeding on the values entered such as the required loan amount, the expected interest rate, the number of years for the loan and the number of years to fully pay for the loan, the calculator gives out the expected monthly payments and also the final balloon payment. This can assist you in planning and organizing your cash flow better and make sure you are ready for the big payment that which is usually charged at the end of the project.
Benefits of Using a Balloon Mortgage Calculator
- Financial Planning: It enables you to know your monthly charges and the bill amount once the tenure of the contract expires.
- Comparison: Enables you to benchmark balloon mortgages against other forms of loans to know the more economical option between the two.
- Risk Assessment: It paints a clear picture of the financial risks so that you can determine whether or not you should go for a balloon mortgage.
Potential Risks and Considerations
- Large Final Payment: Mention can also be made of the fact that the balloon payment that is due at the expiration of this loan period is usually very large. This amount has to be paid off somehow, and therefore Planning which may include refinancing, selling the property, or having sufficient saving is essential.
- Market and Financial Risks: In case of a decline in the value of the property or a change in the financial situation it becomes hard to refinance or sale the house in-order to pay the balloon payment.
- Not a Qualified Mortgage: There are specific types of mortgages identified by the CFPB and in particular, balloon mortgages do not fall under what is referred to as “qualified mortgages”, which would give them certain protection to consumers.
Using the Calculator
To use a balloon mortgage calculator, you will need to input the following information:
- Loan Amount: The sum which you want to get Under this option, the sum of money the buyer wants to borrow in total.
- Interest Rate: The frequency of repayments is, therefore, determined by the annual interest rate of the loan.
- Loan Term: How long until the money is to be paid in full in the form of a balloon payment.
- Amortization Period: The time that is used in making the monthly payment which in most cases is longer than the term of the loan.
The calculator will then provide an estimate of your monthly payments and the final balloon payment amount.
A balloon mortgage calculator is helpful to anyone that is interested in the loan for the following reasons. It assists you to estimate the monthly instalments and the huge lump sum to enable one to make the right decision. As we have seen, balloon mortgages entail some risks, and it is appropriate to have a clear strategy on how one would go about the obligation of the balloon payment as well as looking at other loan products.