Whereas the ARM loan's fluctuation in interest rate and payments means more instability for the borrower, the conforming
balloon loan is fixed rate.
At the end of seven years, borrowers have the right to refinance their maturing Fannie Mae
balloon loans into a 23-year, fixed-rate mortgages at the prevailing mortgage rate.
This includes the defeased loan, fully amortizing loans, and
balloon loans.
Current loan terms for Freddie Mac's SBL offering include a hybrid ARM with initial 5-, 7-, or 10-year fixed-rate periods or 5-, 7-, or 10year fixed-rate
balloon loans, all with up to a 30-year amortization.
Among them, leases and
balloon loans, which advocates say can bring in higher yields than traditional financing and potentially offer more savings for members on their monthly payments.
7 billion in 2006-vintage five-year
balloon loans reaching maturity.
This option is meant to preserve access to credit for consumers located in rural or underserved areas where banks originate
balloon loans to hedge against interest rate risk for loans held in portfolio," the Federal Reserve said in a press release.
Balloon loans provide the borrower with a lower monthly payment and the ability to obtain a lower interest rate for the principal amount before completion of the loan period.
But unlike personal loans,
balloon loans leave that lump sum outstanding when a planned repayment period ends ( which drivers must eventually pay off if they are not to lose the vehicle.
