Question:

Should I take a second mortgage balloon?

Answer:

No. Balloons are loans that look pretty attractive with low payments for a definite period and a lump sum due in the end, and a second mortgage balloon makes no exception.

If you need teaser starting rates on your second mortgage, try a Hybrid or Option ARM, or a HELOC (home equity line of credit). They make more sense and you are not getting stuck with a huge lump sum payment in 10 years.

Balloon payments and prepayment penalties are something clearly to avoid when taking a mortgage loan. A second mortgage loan balloon option is acceptable if you have not accepted a penalty should you choose to refinance before the balloon is due.

Avoid balloon payment on a home equity loan or line of credit.

If you are in need of a home equity loan, generally a second mortgage, a home equity loan (HEL) or home equity line of credit (HELOC) are going to be the options. A HEL or traditional second mortgage makes sense if you need funds to sponsor a single big purchase; a HELOC makes sense if you are going to need funds on revolving basis. However, avoid the balloon feature of the loan, if you don't have a particular idea how to fund it when it comes due.

Recommended helpful present and future homeowners links:
Why: Refinance to a fixed rate loan while mortgage rates are still low.
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Common misspellings: mortage and morgage