another $$$ ?

Well, a lot of you know that I never show my ignorance...least wise, I don't often admit to it. It's been quite some time since I purchased anything with a balloon payment attached to it. Either my memory is failing me or balloon payments are something different around my parts.

The first bare land I ever bought was under contract with a local bank. 132 acres @ 300/acre. I had a down of 10% or so and monthly payments over 20 years. Every five years there was a balloon payment of 3000 or so, which to my understanding was just an amount to apply towards the loan that made it pay out quicker.

My rate of interest never changed throughout the term of the loan, I just had a balloon payment to make every now and then that I could plan for and was applied to the principal of the note, and I thought, to give the owner a cash chunk of change all at once. I was lucky enough to be able to pay the property off in seven or eight years.

I've bought and sold a whole bunch of property and houses since then and only once ran into another deal that had the requirement of a balloon payment and it worked out the same way.

So, what's the deal here? Am I misunderstanding the term "balloon payment", or does it mean something else everywhere else?

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A typical balloon payment loan means you take out, as in this exapmle, a 'pretend' 30 year loan with the typical monthly payment. But, after (in this example) 5 years, the loan is called in. You have a balloon payment at the end of the loan - all remaining principle.

If you can't come up with the money, the bank will own the property.....

There can be reasons to want a balloon loan - if you figure you will have cash in 5 years, etc.

If the ecconomy is unstable (as now) it becomes a rather risky thing. You are betting you can pick up the cash or secure another loan, while the bank is saying you are only worth 5 years of risk, and they have a good chance of taking over the property....

--->Paul

A five year balloon amortized over a 20 year period is still due in full the 60th month. The 20 year part just reduces the size of your payment monthly. But your payments are mostly just interest.

I would stay away from this unless you are dang sure you can refinance at the end of the five years.

i bought my first house 13 years ago like this. as long as i make my payments in a timely manner (as i always have, no matter what) it hasn't been a problem. in this case, i did go to a more traditional lender, and they turned me down. or were going to before i told them to forget it. i have been turned down for living in "unusual" houses more times than i can count. no sheet rock? no city water? tin roof? dirt road? propane? no CHA? the local bank will do it. they are used to us folks living here and our unique needs.

to tell the truth y'all, i don't think i have an answer yet to my original question.

KEEP your 5% loan and take a second mortgage for new construstion.

closing cost will be cheaper on the lower amount. Mortgage tax etc. IMO

thank you!! bw. i had about decided to do that, mainly because that way the payments will be broken up into two parts. i get paid twice a month and can take one payment out of each payday, instead of one huge one once a month. seeing as i never did understand half of what people were trying to explain, that's the best i can come up with.