Question:

When to go for a balloon payment mortgage?

Answer:

A balloon mortgage payment is preferred for a commercial real estate purchase rather than residential properties. A balloon payment mortgage carries certain risk since the borrower may not have the necessary funds to pay off the balloon due at the end of the balloon period.

Some balloon mortgages will have the option to reset as a new loan after the balloon term is over. However, to be eligible, you can't have been delinquent at least with the last 12 payments. If you are not able to pay off the balloon or you are ineligible for resetting the balloon to an FRM after some adjustment, you will have to refinance before the balloon is due.

With commercial properties, it is possible to expect higher return than general residential home appreciation. It is possible to be able to pay off a balloon when it is due, one way or another. In either case, a balloon payment mortgage carries certain risk, sometimes even higher than associated risk with an ARM.

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