how does a loan work that says it is a 360 month term but requires balance payed in full at 15 years?
I was looking through my loan documents and it says that my 2nd mortgage, which was part of the original loan given to avoid PMI, is a 360 month loan but after further research finding out that I have to pay any balance that is there at the 15 year mark. How does that work I am very confused about that? Thanks
- DUGLv 41 decade agoBest Answer
It is called a 15 year Balloon payment.
Your current loan payments are set up for the loan to be paid in full at 30 years. Yet as you see you have to pay the balance off at the 15 year mark. Typically you've kept a good payment schedule, so the lender has no worries about renewing the loan as it get close to the 15 year mark.
Basically it is a way lenders adjust loans. They require you to pay the balance or balloon payment, but usually it is by providing you with a new loan to pay the old loan at the then current interest rate.
Another way lenders do this is to not have a balloon payment but have a clause in the loan that the rate will adjust every X number of years/months.
A full term loan one that won't adjust anytime over the 30 years will typically cost you a couple of points (%) over the current lending rate.
So what it might look like is this the current lending rate is 4.5%
if you get a fully adjustable rate loan you'd expect your rate to be 4.65%
if you get a 4 year arm your rate might be 4.75%
if you get a 15 year balloon your rate could be 5%
and if you went to a full 30 year you might pay 6%
The longer you make the bank commit the higher the rate you will pay.
So depending on each persons ability to make payments and the time frame they plan on keeping their home each loan has advantages. Depending on the size of your loan you could save close to 30k+ over the life of your home payment, by having a lower interest rate and a higher in 15 years then if you had a middle rate for the full 30.
Hope that helps.Source(s): I work in both commercial and residentual realestate.
- Anonymous1 decade ago
You have probably been into this for about 4 years or so now. When your house purchase was set up, it's likely that you didn't have a lot of cash to ork with. In order to get you into the property and have you qualify, that second mortgage was calculated on a 30 year payment structure. The interest rate is probably in the 9 to 12% range, and the 30 year payment structure was needed to make it work. Your loan was known as a 30/15, amortized over a 30 year period, but due and payable in 15 years.
With the massive decline in property values, options have gone away for many. The ability to sell and clear both mortgages, the ability to refi into one loan, have all diminished. The 11 trillion dollar loss of equity is a real problem. A good loan person can help you structure a plan for the future.Source(s): 31 years real estate & mortgage lending.
- chatsplasLv 71 decade ago
You've got a balloon payment after 15 years. The loan payments are amortized over 360 months, but you have to pay it off or refi at 15 years.
Best bet is to make additional payments of principal NOW, at beginning of loan, and GREATLY reduce the amount of principal you'll pay over life of loan, and length of repayment. You'd be surprised how much difference an extra $25-50 a month extra principal payment can make, and won't break your budget now. Getting a tax refund?---put it on as extra principal payment on loan. Same with first time homebuyer's credit. You can shorten the term of repayment so that it's ALL paid off in 15 years with just a little management. Many online amortization tables available.Source(s): tax pro
- 1 decade ago
I believe it's just a way to get you to refinance at the 15 year mark. Is it an adjustable loan? However, if you find at that point in your life that you can't refinance, I would think that you'd be pretty screwed. You may think about a refinance now since the rates are good and make sure it's for the full 30 years.Source(s): Just guessing.