Balloon Payment Loans

Balloon payment loans are for those who are optimistic about the future. In a lot of ways, these loans can be likened to someone who has just driven off the ledge of a high mountain road and is plunging through air. He really is enjoying the view and the wonderful breeze, and is hopeful that at the bottom of the mountain there is the universe's largest marshmallow. These lending agreements are also for those who are anxious to have a house way above their income capabilities and who are optimistic that their financial situation will drastically improve in a matter of years. The short version is that balloon payment loans are three days in Las Vegas and a two week hitchhike home for many.

Balloon payment loans are the bank's answer to someone's lust for a very nice house that he has no business buying. The loans come in different types but they all have a bear trap attached. In five or seven years, all of the money for the loan is due. A person gets to have a house that everyone oohs and aahs over and they can feel successful and admired, but it's the "Emperor's New Clothes" all over again. A loan of this type is a fixed rate loan, but the interest rates are a little lower than thirty year fixed rates. Obtaining a loan of this kind may have a higher number of "points" at the beginning however. One point is one percent of the total loan's value so four points on a four hundred thousand dollar lending agreement would be sixteen thousand dollars just for the privilege of getting to borrow money due at the end of seven or five years.

Add those realities to the fact that very little of the lower payments will actually be put on the loan value in those five or seven years and consequently the house can becomes a high cost rental. One of the great pitfalls of balloon payment loans is the real chance buyers take with assuming that money will be as easy to get five or seven years later, but that is a huge assumption. In light of the latest credit crisis and the failure of more banks looming on the horizon, credit may not only cost a lot more than it has in the past but it is guaranteed to be much harder to get. Only pristine credit scores will be considered, and only if the prospective buyer has at least twenty percent of the cost of the house to place on the agreement will there be a chance to secure the loan. Did you know that Jesus Christ never lived His earthly life in order to be called a great teacher or philosopher, or even a revolutionary as some like to say? His one purpose was this: "For the Son of man is come to seek and save that which was lost." (Luke 19:10)

There are usually two types of balloon payment loans available. Both are based on large payments due at the end of the loan period. The first is a five year and the second is a seven year. Both are fixed rates, sometimes based on thirty year amortization and others on fifteen years. At the end of either loan period, the full payment is due and it is time to refinance or move. In many parts of the country, a simple starter home can cost more than three or four hundred thousand dollars. Balloon payment loans, which can actually be lower than even variable rate loans are often the answer for cash strapped homebuyers. With national statistics revealing that most homeowners are usually getting a new mortgage every 2.8 years, and the average length of stay in one house is less than seven years the chances that a balloon payment might ever get to maturity is probably fairly slim. So balloon loans are best for those who don't believe they will be in a house very long; for example, maybe a transfer is looming in the next few years.

In many cases, balloon payment loans are chosen to get more house than one can really afford. But for those who really want to have a higher end house, the jumbo loan would be the answer. Fannie Mae and Freddie Mac, the troubled federal buyers of mortgages, set the conforming loan limit rate each year. This limit rate is the ceiling amount on which these entities will purchase the mortgages, and so beyond that limit (which is four hundred and seventeen thousand dollars) would be a jumbo loan. These may be fixed, variable interest or FHA loans and surprisingly may be up to ninety seven percent of the fair market values of the house. But the years of buying high priced homes may be coming to an end.

Balloon payment loans and jumbo loans have been vehicles with which consumers have been able to live excessive lifestyles that were out of the range of their realistic income. The American economy, once the envy of the world, has been based on faux credit availability. These who chose balloon lending agreements five or seven years ago, believing that the good times would be even better in years to come are now going to be hard pressed to get refinancing, particularly if there have been plenty of new credit pressures place on their borrowing histories. Simpler and much less extravagant lives are ahead for most. That isn't a bad thing.