Balloon Payment Refinancing Key Terms

Don't get caught off guard by balloon payment refinancing

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.

 

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.
Try: 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.
Try: 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.
Try: 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.
Try: 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.
Try: 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).
Try: Discover more about liens from the Oregon State Bar.

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