7/23 Mortgage

[Monster01]

In one of the previous topics about buying home, someone mentioned 7/23 baloon mortgage. Can anyone explain what is that mortgage and how is it different from regular mortgage. Thanks.

[MaximA_list]

7/23 а также 5/25 дает Вам более низкий процент на первые 7(5) лет. После этого процент неизвестен, обычно приходится перефинансироваться. Платежи расщитываются исходя из 30 лет.

[sergeibob]

[quote:2b7e0eca9e="Monster01"]In one of the previous topics about buying home, someone mentioned 7/23 baloon mortgage. Can anyone explain what is that mortgage and how is it different from regular mortgage. Thanks.[/quote:2b7e0eca9e]

From http://www.homeloaninsider.com/m101/723.html

[quote:2b7e0eca9e]
Monthly interest and payment rates for this 7/23 balloon loan are calculated as if the loan is to be repaid over 30 years, but the actual term of the loan is 7 years. At the end of 7 years, the borrower must either prepay the remainder of the loan in a lump sum payment or elect to extend the loan term for the remaining 23 years at a new fixed interest rate. The new interest rate is based on the index (FNMA 30-year fixed rate net yield for 60-day mandatory delivery) plus the margin of 0.5%. The following conditions must be met to extend the loan: The borrower must still be the owner-occupant of the property; all payments for the past 12 months must have been paid on time; there must be no lien on the property other than the original loan; the new rate cannot exceed the original rate by 5% or more; and the borrower must request the exercise of this option in writing 45 days prior to maturity of the loan. The loan is not assumable and no penalty is assessed for prepayment.
[/quote:2b7e0eca9e]

Another option is when your rate stays fixed for a number of years (5 or 7 usually), then changes to adjustable. But that is not called baloon.

These kinds of mortgages are useful when you are confident (or almost) that you will move in 5 or 7 years anyway, this way you pay lower interest rate.

Boston Globe had today an article about those hybrid mortgages
[url=http://realestate.boston.com/news/2002/08/082402_they_combine_best_features_of_fixedrate_and_adjustable_loans_lenders_say.html]
Hybrids combine best features of fixed-rate and adjustable mortgages, lenders say [/url]

[quote:2b7e0eca9e]
Interest rates offered on hybrid mortgages are running as much as 1.5 percentage point lower than rates on 30-year fixed-rate mortgages. Hybrid mortgages also offer more interest rate protection for a borrower than a traditional one-year adjustable-rate loan.
[/quote:2b7e0eca9e]