Borrowers taking a balloon payment mortgage most likely
A. plan to rent out their homes.
B. must repay the loan in five to ten years.
C. are unwilling to accept any risk in borrowing money.
D. remain in their homes for 30 years or more
Answer Explanation for Question: Borrowers taking a balloon payment mortgage most likely
Borrowers taking a balloon payment mortgage most likely must repay the loan in five to ten years. The balloon mortgage is a type of real estate loan with low or no monthly payments for an initial period, after which the borrower is required to pay off the balance in a lump sum. Interest-only payments, if any, are often offered, and the interest rate is usually relatively low. A balloon payment is a large payment due at the end of an amortized loan, such as a mortgage or commercial loan. It is comparable to a bullet repayment.
Balloon payments refer to large final payments. Balloon payments are typically twice as large as the previous payments on the loan. Consumer loans tend to have smaller balloon payments than commercial loans because the average homeowner cannot afford to make a large balloon payment at the end of a mortgage. Balloon payment mortgages require the borrower to pay an interest rate for a set number of years. When the loan resets, the balloon payment rolls into a new or continuing amortized mortgage at the prevailing market rate at the end of the term.
This type of mortgage can be advantageous for borrowers who expect their income to increase significantly in the near future and who are confident they will be able to make the larger payments when they come due.However, balloon mortgages can also be risky. If a borrower’s income doesn’t increase as expected or if they encounter other financial difficulties, they may not be able to make the larger payments when they come due. This could lead to foreclosure. For these reasons, it’s important that borrowers carefully consider whether a balloon payment mortgage is right for them before signing any paperwork.
Some two-step mortgages do not automatically reset. In addition to the borrower’s ability to make timely payments, it can also be determined whether the income has been consistent. If the loan does not reset, a balloon payment is due. On a typical 30-year home loan, a balloon payment is not used. In most cases, balloon payments are at least twice as high as previous payments.