Colli Real Estate

I’m trying to understand BALLOON MORTGAGES. Can someone help me understand the following example?

I entered the following into an online mortgage balloon calculator:

Loan amount $100,000.00
Interest rate 6.000%
Term 10 years
Amortization period 30 years

My question is:

After 119 monthly payments of $599.55 why does the balloon payment come out to $84,285.33 ? If everything is due on a 30 year amortization schedule, shouldn’t the amount owed be the remaining 241 payments multiplied by $599.55 ($144,491.55) ? If not, then where does the $84,285.33 come from?

I am not an attorney. I am not in the mortgage business. I am not an accountant. I am not a real estate broker.

The term “Balloon means it goes in the air or goes away.
B1] Picture a hot air balloon on the ground. This is the entire mortgage, with all the interest, as it is – right now today, this minute.
B2] The balloon is filled with air and the propane is lit. The monthly payments are being made, BUT the balloon is STILL on the ground. This is because gravity [the interest] is keeping the loan from being paid in full.
B3] The balloon starts inflating. The monthly payments are being paid.
B4] As the balloon goes along the ground, it very rarely takes off in a vertical direction. [The interest STILL has control.]
B5] It takes a bit to clear the bushes and trees. Eventually it gets above the wires and taller buildings. [The mortgage is being reduced.]
B5] The wind catches the balloon and takes it in whatever direction its blowing, but the balloon is moving.
B6] The propane in the tank eventually is used. BUT the balloonist wants to continue climbing and doing whatever it is balloonists like to do. [The due date for the balloon payment is fast approaching.]
B7] The balloon gets a huge hole in it. [The balloon payment is due.]

The information I am giving is in reference to simple interest, fixed rate, positive amortization mortgages [THAT‘S a mouthful, isn‘t it?]. Lenders KNOW the following facts about mortgages:
1] Long before the actual last payment date, which is stated in the mortgage, the great majority of mortgages will be paid-in-full .
2] The concept with most mortgages: the interest is due on the remaining balance.
3] Contrary to what the great majority of people think or believe, the interest and principal payments are not evenly spread throughout the life of the mortgage. The great majority of the interest is paid in the beginning of the loan. The break-even point – when interest and principal equal each other – does not usually occur until sometime after the mortgage is more than half paid. Many times not until the mortgage is at least 2/3 paid down.

In the case of a balloon mortgage, the payments are made as though it was a 30 year loan, with equal monthly payments over 30 years. In your case: monthly payment is $599.95 for 119 months or payments. Yet, for the explanation I gave, you STILL has the great majority of the principal due on the loan.

Borrowers should request the following:
1] an open-end mortgage.
2] fixed rate, with positive amortization [meaning the mortgage is being reduced.]
3] no pre-payment penalty.
4] an amortization schedule to follow along with how much the mortgage is being reduced.

To save LOTS AND LOTS of money, all the person paying the mortgage has to do is to enclose the additional principal payment for the NEXT month, together with the current month’s payment.

Accompanying the current month with the additional month’s principal, should be a note with the account number and a short message stating: ”Enclosed please find this month’s payment of principal and interest in the amount of [this should always be the same] $—–.
In addition there is the additional amount of $— representing the principal for —– [month and year], which I would like to be applied to the balance of the mortgage. According to the amortization schedule I have, this will reduce the mortgage balance to $—-

Thank you for asking your question. I enjoyed taking the time to answer your question. You did a great job – not only for your information, but for every other person interested in reading my answer.

I wish you well!

VTY,
Ron Berue
Yes, that is my real last name

yt.avi

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