What is a balloon payment?
You take out a loan for goods or equipment. Your monthly loan payment is half of what they should because the last loan payment of the loan, called a loan balloon payment, is a large portion of the total loan.
A loan Balloon payment is a deferred payment. Handled correctly, a very smart thing to do. Mishandled, real headaches. 6 steps to keep it smart
The following is what should not happen.
You want to buy goods and equipment with loan financing the purchase.
You are quoted a loan monthly payment and it seems high to you.
You are then told the loan payment can be halved and you can have a loan balloon payment at the end.
So you enter the loan agreement thinking you are getting what you want, at a very low monthly payment.
Sadly, many buy like this and set themselves up for a financial nightmare at the end of the lease.
Here is why.
The lease they have signed could be as follows.
Value of loan $30,000,
Interest and principle payments on $15,000
One last payment to completion the loan of $15,000.
Assume that you have worked the goods very hard and they are about three quarters through their life span and have been significantly depreciated. You check the market and you can buy your goods for $7,000 in the second hand market.
You have to come up with $15,000 last loan payment. Take the situation that you do not have the $15,000 to make the last loan payment. You will be confronted by two options
What is a value of the goods? $7,000. You do not have the $15,000 so you take out a $15,000 loan to pay for goods of $7,000?
You sell the goods at $7,000 and take out a loan to pay the $8,000 off the Balloon payment. Now you are paying for goods you do not own!
How do you avoid these traps? So how do you avoid getting caught? It is quite easy.
Look at the goods that you want to buy. Now take a same type of goods that were being sold three years ago. The model may be superseded but try and find out what you would have paid for it then. There is a value in keeping old catalogues.
Look at the second hand market for that model of goods. Divide the goods into three categories.
How much is each category currently selling for today?
Work out the value it has depreciated by in the period. If it was sold for $10,000 and is now $5,000 it can be assumed that it will lose its value by 50% in three years. The numbers may change but the general percentaged value should not. It may be that the value rises in which case there would be a benefit to you.
Now look at the goods you want to buy today. Assume that the value of the goods in three years time would be based on past performances. The price for purchasing new goods for $15,000, you then estimate the selling price for them in three years to be $7,000.
In the loan lease agreement you allow for the loan lease of the goods to be $15000. You have a loan balloon payment of $7000. Remember this is the final loan payment of the loan. You have much lower monthly payment than if you were paying off the $15,000 in three years. At the end of three years, you sell the goods, and pay out the loan balloon payment of $7000
You now repeat the loan process and purchase the latest goods by repeating the same process.
You are getting the goods at a lower monthly cost than your competitors and you are always maintaining your competitive edge because you are using the latest technology.
This article is a very high level explanation. Be sure that you get the correct investment and taxation advice before proceeding. A Mortgage Broker can introduce you to lenders who can arrange finance for you.
A balloon mortgage is one in which monthly payments are made for a pre-determined period of time, with the balance of the loan paid in full at the end of the loan term. Like an ARM, interest rates on a balloon mortgage are typically lower than on a fixed rate mortgage and this makes the monthly payments on a this type of mortgage are very low and affordable. Balloon mortgage loans are calculated to amortize over a longer period than the due date of the balloon. A balloon, or lump sum, payment is required at the maturity of the loan to completely pay off the remaining principal. Therefore its important to keep in mind that the terms on a balloon mortgage are insufficient to completely amortize the loan.
Balloon mortgages can, and often do, contain a contractual opportunity to refinance at prevailing rates when the balloon payment is due. If the balloon mortgage loan has the option to be refinanced when the initial period expires, it will be called a convertible balloon mortgage. Some balloon mortgages come with “reset” clauses that provide for the original lender to reset the loan terms so that the loan is fully paid off in the remaining twenty three to twenty five years. The advantage of a balloon loan with a reset is that the loan payment will remain constant for the remaining life of the mortgage. The disadvantage is that the borrower is subject to the then current rates. If you are unable to convert or refinance the balloon mortgage, you may be forced to sell your home to make the loan whole. However, for the initial period of the loan, the interest rates on a balloon mortgage are usually a little lower than a comparable Adjustable Rate Mortgage.
Alternatively, with a fixed-rate mortgage you’ll have the benefit of knowing exactly what your monthly payments will be for the entire term of the loan. Because few people have the funds to fully pay off the balance due at the end of the balloon term, when using a balloon mortgage as the instrument of financing, the borrower should be concerned about future interest rates because they will be subject to them when the loan matures. However, most people that take out balloon mortgages assume that they’ll be moving within the term of the balloon period or that they will be eligible for a more attractive loan at the end of that period. Many people also use balloon mortgages to get that larger dream house. This strategy can, in fact, be fairly risky and a borrower should consider the market risk against the benefit of a larger home. Again, at the end of that period, the borrower must pay off the loan in full – this is the “balloon” payment. For example, a 7 year balloon calculated to amortize over 30 years will have low payments for 7 years and then the remaining balance will be due.
Before borrowing it’s important to consider whether you already have too much debt, whether you will be able to service the debt if you refinance at the end of the balloon period (or pay the balance), the risks associated with the current real estate market, and other factors as well. While it can be fairly easy to make the monthly payments on a balloon mortgage, it is very important to consider that there could be difficulty in managing the terms of the loan once it matures. In the current climate, fixed-rate mortgages are definitely the “loan of choice” for homeowners seeking a refinance mortgage, but if all the factors are considered and risks weighed, a balloon mortgage can be a viable alternative. Loan programs vary depending on the borrower’s credit, closing costs vary from state to state, work with your loan officer to get a proper estimate when you apply for your loan.
The balloon payment loan is a kind of loan wherein a large or even the lump sum payment is made at some point in the future. The specific terms are most commonly at the end of the long term loan or at agreed expiration date. This means when you make a balloon payment is when your term of your loan ends mostly in lump sum amount to clear your loan. In some other loans, it caters both the principal amount and the interest of the loan. And when the time comes of the loan to end, no more debt remaining. The monthly payment for a balloon payment loan. Considering that you pay the interest so on until the expiration term, you are required to pay the principal of the loan in full which is in the policy.
The disadvantage on this kind of loan is that when you cannot pay the loan and you want to have it convert or refinance the balloon loan. Then the current interest rates will be applied to your balloon loan when you have it refinance and this is called as convertible balloon loan. People should think it twice before they barrow and one thing to consider before you borrow is to see to it that you don’t have too much debt or other loans. People dream of big houses and nice cars not considering the salary they have.
Before getting any kind of loan, think twice first and always consider to see your budget if it fits to your dreams. If you are single with big salary and can compensate with the loan you need to go then that is fine but how about family people? People who have families, you have to consider not only one thing which is yourself but your family needs also. Do your daily expenses and does your salary fit for the loan?
To dream is good but we have to consider first the basic needs and your daily expenses. Dreams can wait for the right time. But your basic daily needs cannot such as food, monthly bills for your house, insurances premium payment, etc. Most people who have this kind of loan go for their dream house, the balloon loan since this kind of loan allows you to borrow a large amount of money either short term or long term depending of your choice of years to pay.
Although this kind of loan, it’s an opportunity to people who have big dreams but you have lots of things to consider when you want this kind of loan. People who know their income and do monitor their situation can have this loan. Since lower payment are great ideas but you need to remember that you have an obligation which is the balloon payment at the end of the loan, having or if you want this balloon loan.
As borrower, you must think carefully before borrowing or applying for balloon loan, your ability to afford such large amount the full payment at the end of your expiration dates of your loan. Remember, everything has its own advantage and disadvantage so be wise and smart in choosing a loan.
If your car insurance is due for renewal and you are considering buying another policy then this article will provide you with important facts that you should know about. Car insurance policies are getting increasingly expensive and you should do all that you can to reduce your costs. How much you have to pay for your car insurance is dictated by a variety of factors as they apply to you and your vehicle.
In this article we will examine coverage limits, your age, gender and marital status, your location and insuring other household members. All of these factors will have a great influence on how much you will have to pay for your policy.
Coverage limits are generally dictated by the price that you are willing to pay for your insurance. A higher level of coverage will generally result in higher premiums. The best way to find a good value policy is to comparison shop. Nowadays it is generally accepted that the best way to do this is by using a car insurance comparison website.
Your age, gender and marital status will have a great effect on the auto insurance rates that you are offered. Insurers rate drivers using a variety of criteria, if you are a young single male driver you will usually have to pay higher rates. If you are a middle-aged female married driver then your rates will be lower. Insurers calculate the best car insurance rates for you by comparing levels of risk. Those groups which are statistically more likely to be involved in an accident have to pay correspondingly higher rates.
Location plays an important part in deciding how much your premiums will cost. Drivers who live in an urban environment will usually pay more than those from a rural area. This is because drivers who live in cities and heavily populated areas are more likely to be involved in an accident, or to have their car stolen or vandalized. Insurers generally offer better rates if you’re able to demonstrate that you keep your vehicle in a garage at night. You may also be able to improve the security arrangements of your automobile by fitting an alarm, immobilizer and steering wheel lock.
Insuring other household members will have an influence on the cost of your policy and the best car insurance rates that you offered. If you have teenage family members living with you and they are added to your policy, then your costs will increase. This may still work out cheaper than if your teenage driver were to have a separate policy in their own name.
In conclusion, there are a variety of different factors which can affect your ability to be offered the best insurance rates. Some of these are coverage limits, how old you are, whether you are male or female and whether you are married or single. Your rates will also be affected by the area where you live and whether other household members are included in your policy.