This is a payment is commonly associated with people that are running on bad credit. Bad debt, simply put, is paying lower monthly installment in exchange for higher rates that ultimately mean owing longer and paying more debts on the long run. Many see it as a quick means of relief but it is by no means a real solution to the problem at hand. Bad debts make you owe more than you, can feasibly settle or pay off in a reasonable period of time.
In fact, many buyers or investors are not always keen to take up property with balloon payment since it is usually a large junk of bad debts that they are not ready to spend. The borrower would, of course, will get some time to gain equity before the major part of the money is due but the burden of repayment will largely rest on the buyer or investor.
If a balloon payment is part of your deed or contract, it is highly preferable the same will not be due until at least, the next five years. The period of five years or more will give room for the property to appreciate. Hence, the buyer will have the opportunity to refinance the property into a manageable mortgage loan by the time the balloon payment is due.
Balloon payment is most common with lease option. It is always termed an option because a large junk of cash is due at a specified date. Choosing to exercise the option means you have agreed to make the balloon payment so that you can remain the rightful owner of the property.
When balloon payment is placed into a contract for deed or a traditional financing mortgage, such deed has to be considered carefully and with caution. The duration will be put into consideration to determine the feasibility of financing the balloon payment at the specified date.
As much as possible as homeowners, it is advisable to avoid having bad debts that would put pressure on would be investors or buyers. Finding buyers and investors for your property will be much easier that way though, if you find yourself in that situation, there would always be a way around it.