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.
Final piece of advice: Monitor your credit report and score regularly, to ensure there are no inaccuracies or unauthorized activity. Your credit report and score are the two major methods that creditors and lenders use to make a credit decision about you. Higher scores usually mean lower interest rates, which will save you money.
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