Explanation<\/h2>\n
A balloon payment, in simple terms, is a principal amount that is not paid monthly and hence the final payment is due at the end of the loan.<\/p>\n
Now you might ask why would anyone want a balloon mortgage<\/a> and have a large chunk of money due all at once?<\/p>\n First and foremost, balloon payments are typically used in commercial loans<\/a> and more specifically in commercial mortgages.<\/p>\n This type of loan structure is really useful for those who invest in a property to either sell it before the loan matures<\/a> or refinance<\/a> it.<\/p>\n Some of the typical businesses that utilize this type of payment are fix and flip<\/a> investors and landlords<\/a>.<\/p>\n Fix and flip real estate investors<\/a> purchase, rehab, resell the property, and repay the loan. Landlords purchase, rehab, and then refinance short duration loans.<\/p>\n A balloon payment can start with fixed payments for a specific duration, and the remaining balance is paid at the end of the term.<\/p>\n This allows borrowers to make lower monthly payments as opposed to making higher payments upfront.<\/p>\n Borrowers can use the money to invest in the business, generate more profit<\/a>, sell the property, and then pay off the final amount at the end.<\/p>\n These types of payments are most suitable for short term funding that brings in the capital and increases the cash flow<\/a> with the purpose of generating a larger amount of profit.<\/p>\n Always evaluate your options, do some basic calculations on what your appetite is. Also make sure you have an exit strategy<\/a> in case something were to go wrong.<\/p>\n <\/p>\n
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Mohit Anchlia<\/strong><\/p>\n![\"Real](\"https:\/\/www.realestatewords.com\/wp-content\/uploads\/2020\/03\/Real-Estate-Words-Contributor.png\")
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