July 12, 2019
The low monthly payments that are available with balloon lot loans are quite tempting, but you might want to reconsider your options before signing on that dotted line.
These types of lot loans and land loans used to be very popular many years ago, and while their popularity is fading fast, they are still an option that is given to those who want to make a purchase but do not want a huge mortgage. Most people who consider balloon lot loans are only thinking about the lower interest rates and low monthly payments, instead of focusing on that one massive payment that is due at the end of the loan itself.
If you are not completely aware of what a balloon lot loan is, it is a mortgage that doesn’t get fully paid
off over time. Instead, you would make payments on that loan for usually five to seven years and then
the rest of the balance is due in full at the end of that time. That final payment is quite the large sum,
which is how it ended up being termed a balloon payment.
This type of lot loan is so tempting, because you would not need to worry about any adjustable interest rates. Plus, you would automatically qualify for a higher loan than you would with a regular loan. There is one major risk that you need to keep in mind if you do plan to get a balloon lot loan now and that is that there is no guarantee that you can refinance it when you need to. While you can hope that you will qualify as a borrower in a few years, you may have a few changes that will prevent that from happening. The interest rates could also raise significantly during that time and that will increase the amount that you pay each month after refinancing. The last thing that could happen is that property rates can take a hit, it has happened many times before, and you will not be able to refinance for the amount that you need to.
While these loans are not advisable for many reasons, there is one reason why you may want to
consider one. That reason is that you know you will be making a lot more money in the future or you
know that your credit score will raise significantly in the next few years. Obviously, you are still not
guaranteed that there will not be risks with your decision, but you might have a better chance during
the refinancing process.