Balloon Loan Mortgage Lending
Practices...
A balloon loan is
any loan which has a
final payment that
is larger than any
of the previous
payments on the
loan. The final
payment is called a
balloon payment. The
term loan described
earlier is a
type of balloon
loan. Partially
amortized loans,
discussed next, are
also a type of
balloon loan. In the
tight money markets
of recent years, the
use of balloon loans
has increased
considerably.
Balloon loans with
maturities as short
as 3 to 5 years have
been commonplace.
This, in effect,
gives the buyer
(borrower) 3 to 5
years to find
cheaper and
longer-term
financing elsewhere.
If such financing
does not materialize
and the mortgage loan is not
repaid on time, the
lender, usually the
seller, has the
right to foreclose.
The alternative is
for the lender and
borrower to agree to
an extension of the
loan, usually
prevailing interest
rates.
Balloon
Loan To Partially
Amortized Loans
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