The need for balloon payment refinancing can catch a borrower by surprise or, if the loan paperwork is read thoroughly, can be prepared for. Entering a balloon payment loan comes with the understanding that at the end of the loan term the final payment of the loan comes due as a lump sum, called a balloon payment because of its large amount. Three things can happen at the end of a balloon payment loan:

1. Payoff the balloon payment loan in full

2. Balloon payment refinancing

3. Sale of the financed assets

Since refinancing is the most recommended option, some quick but important information will help with balloon payment refinancing for beginners. When trying to refinance, the lender can refuse to refinance the loan or there is a risk that as a borrower you will not qualify for the new loan. If you can't refinance you could lose your assets. Refinancing will carry the cost of additional lender fees.

Action Steps
The best contacts and resources to help you get it done

Understand balloon payment loans and balloon payment refinancing

The first time you partake on a journey, especially one of such high personal and financial investment as a balloon loan, it is comforting to know what to expect. Having access to information that will guide you through each step of the process will make things easier. Become familiar with the process and what each step is.

I recommend: HomeLoanBasics.com walks you through the basics of a balloon loan. For help understanding terms and other financial information that coincides with a balloon loan, visit Escrow Publishing Company.

Use available tools to help you decide on balloon payment refinancing

Keeping the property you have financed or selling it prior to the end of the loan term is a big decision. See the numbers more clearly by using tools created to quickly give you loan figures based on information you input. Knowing the actual numbers can asset the decision-making process and benefit your financial future.

I recommend: Input the requested numbers into this calculator from Borrowisely.com to see where refinancing will leave you financially. Bankrate has a variety of other calculators that easily give you calculations that will help in your decision-making.

Work with companies that will help you understand balloon payment refinancing

It is wise to partner financially with a company you feel comfortable with. A trusted company will help by answering your questions and guide you in the right direction for your loan refinancing. Working with such a company adds a personal element to the vastness of the finance world.

I recommend: Citylight Financial has a wealth of information on balloon payments and mortgage refinancing available to their family of customers. Choosing to work with Union National Mortgage Company will start you on a walk with finance professionals and provide you with an informative refinancing guide.

If your balloon mortgage is coming to the end of it's term, you may want to look into balloon payment refinancing in order to soften the blow. Because of the high cost of commercial real estate, many business owners start with a balloon mortgage to lessen their initial costs. If they cannot afford to pay the large lump sum as it becomes due, a balloon payment refinancing provider can help switch to a more manageable type of mortgage.

Some great reasons for balloon payment mortgage refinancing are:

1. You cannot pay the lump some. Perhaps the most popular reason to consider balloon payment loan refinancing is because your original loan term is almost complete and you cannot afford the lump sum payment. A refinance can help spread the cost over time.

2. You want a lower interest rate. In many cases, if you can find balloon payment refinancing, you will be able to get a better interest rate on your loan. Hopefully, you have faithfully made payments and have improved your credit score.

3. You want to cash out equity. If you have equity in your property, you can get additional cash when you refinance balloon payment mortgage.

Action Steps
The best contacts and resources to help you get it done

Use commercial lenders to refinance a balloon payment loan

Commercial lenders are the ideal choice for many business owners. They understand the issues that business owners face and can help make good mortgage decisions.

I recommend: When it comes time to refinance your balloon mortgage, talk to companies that specialize in commercial lending. Commercial Direct has a number of different mortgage programs depending on what type of property you own. Commercial Mortgages Direct also helps business owners to refinance their loans.

Get balloon payment loan refinancing on a jumbo loan

Properties that are exceptionally large or in an expensive city come with much higher price tags. These high amounts may have prompted you to get a balloon payment mortgage in the first place. If you still owe a large sum on your mortgage, talk to banks about a jumbo mortgage.

I recommend: Use Bankrate.com to compare the rates on jumbo mortgages in your area. Then, apply for a jumbo mortgage directly through a bank such as Irwin Union Bank.

Use a balloon payment refinancing provider to switch to a fixed rate mortgage

Balloon payment mortgages work well for new business owners that need to reduce their monthly costs, but a fixed rate mortgage is almost always the best deal in the long run. If it's time to refinance your balloon mortgage, try to get a good deal on a fixed rate loan.

I recommend: Most nationwide and local banks work with business owners to provide fixed rate mortgages on commercial property. Bank of America and US Bank are two popular choices.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Use balloon payment refinancing information to make sure that you are getting the best deal. If it's not time to make the lump sum payment on your original loan, you may be able to save money by waiting for a good interest rate.

Balloon-payment refinancing pricing and costs are determined on a per-loan basis. Commercial property owners often use this type of financing due to the low payments at the time of purchase. Later, when the balloon payment comes due, the final payment can jump significantly. Keep in mind that balloon payment refinancing may not be an option for every commercial mortgage. It is important to speak with lenders and to understand fully the type of loan available prior to considering loan options online. There are several things to keep in mind with this type of refinancing, so read on and be prepared.

1. Note that some commercial loans may have penalties associated with balloon payment refinancing that should be taken into account.

2. Consider the differences between balloon payment refinancing into an adjustable rate loan or a fixed rate loan by using an amortization calculator.

3. Hire a financial consultant to handle balloon payment refinancing pricing and costs for the business and find the best solution.

Action Steps
The best contacts and resources to help you get it done

Learn interest rates on balloon-payment refinancing

Interest rates are the key cost factor when refinancing. The lower the interest rate is, the less costly it will be. Various industry-wide resources often update their standard refinancing rates, many of which may apply to commercial balloon-payment refinancing. These loans may be refinanced through any type of commercial loan. The rates may range from as low as 4.5 percent up to 8 percent or more, depending on the market.

I recommend: Speak with lenders directly or use online services to determine the latest interest rates for refinancing these commercial loans. Steelhead Capital provides daily updates on interest rates for commercial loans. Another website providing up-to-date commercial loan rates is HSH Associates.

Factor in balloon-payment refinancing closing costs

Closing costs can factor into the cost of any mortgage loan. These costs include things such as a title search ($1,000-$3,000), legal fees (up to $2,000), origination fees (1 percent of the loan's value) and appraisal costs (up to $3,500).

I recommend: Learn more about the cost of closing on balloon-payment refinancing by obtaining a free quote from a lender. Commercial Finance Advisors provides information and resources for investors looking at all types of commercial loan refinancing. Obtain a quote for a commercial loan through MortgageLoan to compare closing costs, interest rates and terms.

Determine balloon-payment refinancing pre-payment penalties

Some lenders put penalties in place for paying off a loan early or prior to a set time. This may factor into the refinancing costs since the refinancing process pays off the initial loan. Pre-payment penalties can be up to 5 percent of the loan's value, which can be very sizable. Determine if this additional cost makes it worthwhile to refinance.

I recommend: Utilize commercial loan amortization calculators to determine how pre-payment would affect the value of refinancing the loan, given the fee involved. PropertyByNet offers an amortization calculator that will show the benefit of refinancing the loan. Bankrate offers an amortization calculator that allows individuals to compare loan options.

Knowing balloon payment refinancing key terms can make the difference in keeping your home or business and losing it. Many people have fallen into the balloon payment trap without understanding the concepts, the terms and the definitions. People are drawn in by the low payments and the fact that they have been easy to qualify for this type of financing. The problem is that when the balloon payment comes due, families and businesses have not been able to afford the cost, have fallen into bankruptcy and have lost their properties.

Instead, if you educate yourself as to the balloon payment refinancing key terms and definitions, you can prepare yourself if you choose this refinancing option. This method does work for some people, including people wanting properties only for the short term, e.g. investors flipping a property. So familiarize yourself before making any kind of decision regarding this style of refinancing option.

Action Steps
The best contacts and resources to help you get it done

Amortization

Amortization is when you distribute a single lump-sum cash flow into many smaller cash flow installments, and in this repayment model, each repayment installment has both principal and interest. In this model also a greater amount of the payment is applied to interest at the beginning of the amortization schedule, with more money towards the principal at the end.

I recommend: Learn more about amortization and balloon payment mortgages from Vertex42.

Note

The mortgage note is the promissory document associated with a mortgage loan. It is the written promise to repay a sum of money owed plus interest at a specified rate and length of time in order to meet the terms of the agreement.

I recommend: Find out more about selling mortgage notes from The Mortgage Buyer.

Maturity

Maturity is the final payment date of a loan. At this point all remaining interest and principal is due to be paid to the lender.

I recommend: Learn more about mortgage maturity from Investopedia.

Truth in Lending Act

The Truth in Lending Act (TILA) is a US federal law that was created to protect consumers in credit transactions. It requires clear disclosure of key terms of the lending arrangement and all costs.

I recommend: Read full text and information from the Truth in Lending Act from the Federal Deposit Insurance Corporation.

Refinancing risk

Refinancing risk is a chance that a borrower may not be able to refinance by borrowing to repay the existing debt. This bullet payment at the point of final maturity may lead to bankruptcy or may force the borrower into a fire sale.

I recommend: Find out more about the refinancing risk from RefinancedHomes.com.

Liens

A lien is an encumbrance over a property to secure the payment of a debt. Liens in the US include mortgages, car loans, security interests, other mortgages and property improvements (mechanic's lien).

I recommend: Discover more about liens from the Oregon State Bar.