Is the Ballon loan a good loan?

Question

I bought a house six months ago. The price was 465,000. Anyways my real estate agent hooked me up with two mortgages. My first mortgage is fixed for 5 years and is interest only, i got it for 6.62% interest rate, my second mortgage is a balloon loan and i got that one at 9.15% interest rate. So i pay 2,031.39 for my first mortgage and 749.80 for my second mortgage. So do you think i got a good deal or my real estate agent screwed me over. I don't know anything about real estate so any help or advise would be appreciated. Thank you.

Answer 1

Short answer: You probably did not get the best mortgage product for your situation. Maybe, but not likely. The ballon interest rate is high, but the IO-ARM is pretty low. So, I am thinking you must have decent credit. If you are planning on selling in the next couple years and have not so good credit, then your loan products are not bad. Otherwise, you probably had, and still have, better options.

Long answer: My business is based on showing people different mortgage products and educating them on which products will put them farthest ahead in the long run. If you are interested, please e-mail me at [e-mail] with "mortgage" in the subject

Answer 2

i can't tell if you will award me best answer, since i do not know how long it will be before your 2nd mortgage balloons out. nor do i know if the 1st mortgage is an ARM, meaning that the interest rate is fixed for 5 years and then adjusts and how it adjusts or how often it adjusts (cap) upwards, i am sure. but by how much will that rate go up? and on what number of dollars? what is the amortization schedule for each of the mortgages?

by the way you described the situation, i think that it could have been that you were in the boat that practically every buyer or renter i know of these days is in: possesses a low credit score. when you are there, you can't get your choice of mortgage products.

but this is what you should do:

call the lender of each mortgage after you have thoroughly read each mortgage. have it in front of you when you call. if you want to highlight anything you do not understand, highlight on a copy of it.

if it turns out that these mortgages are going to hurt your situation rather than help you, i suggest that you refinance. if you have paid on the mortgages, on time, for about 12 months or more, you should now be able to combine them into one fixed rate loan.

how to make all the money you pay less: this is what all smart buyers do:

every time, even once a month, you have a few bucks extra (even if only $25), then write the mortgagee a check, marking the memo section and the back of it "principal payment only, account number xyz," whatever xyz is. then when uncle sam sends you a refund on your taxes at the end of the year, send it also to the lender(s) for prepayment on principal ONLY.

why?

there is no penalty for prepayment of residential mortgages.

the more you pay down the balance, the less is left over for them to put interest on.

the quicker you pay down the mortgage, the less interest accumulates.

the more money you pay down your principal balance, the fewer years you will be paying on the loan.

you can ask your real estate licensee to help you call the lenders, if you want. i'd do it if i had helped you. i doubt a REALTOR would ever, ever, do anything whatsoever that would hurt you. you have no idea what the National Association of Realtors' (r) Code of Ethics states, and besides, i don't need its code: it's my reputation that keeps me in business.

Answer 3

Balloon loans suck unless you know that you will be able to come up with that money when that loan comes due. A balloon usually means you will have one giant sum of money due after a certain period of time. An arm loan is only good if you plan on getting out of the property before the rate starts adjusting. In todays market expired arm loans are adjusting up like crazy. Have you seen how many people are going into foreclosure over interest only arms? So unless you are selling out before these loans come due...I don't think you got a very good deal. If you planned on living there long term you would have been better off with a 30 year fixed loan.