A 30/15 balloon mortgage generally offers the features of a 30 year fixed-rate mortgage loan. The loan payment will remain stable for the life of the 30/15 mortgage, like a fixed-rate mortgage would, and unlike a mortgage with an adjustable rate. Adjustable-rate mortgages (ARMs) reset after a specified period of time. The reset can cause the loan payment to rise unexpectedly, as the interest rate on an ARM is adjusted to match inflation and current interest rates as determined by the financial market.
A 30/15 balloon mortgage loan is a fifteen year loan. The "30" represents the amortization period, which is calculated for 30 years, and the "15" stands for the length of the loan. Amortization is the process by which the balance of the loan decreases over the life of the mortgage. A 30/15 loan is only 15 years, but the payments are based on a 30 year loan. However, this results in a large portion of the principal being due at the end of the 15 years. This portion is the "balloon" feature of the loan.
The amortization schedule of a 30/15 balloon loan can result in lower payments for someone with a 30/15 mortgage because the balance is calculated as if the debt is being paid over 30 years instead of 15. A borrower with an option to extend the 30/15 loan can extend the loan past the 15 year mark when the balloon is due. A new loan agreement must be signed, and the interest rate is recalculated, so the payment will change and additional fees can apply.
The remaining balance on a 30/15 balloon mortgage will become due at the end of 15 years, and the borrower must refinance the loan or sell the house if he cannot afford to pay the total amount. Refinancing is when a homeowner obtains a new mortgage to pay off an existing mortgage. Typically, refinancing is done so the borrower can get better loan terms, like a lower interest rate. This type of mortgage can be a viable option for someone who will not stay in the home for more than 15 years, as the person can sell the home before the balloon portion of the loan is due.
The lender does not have to refinance, extend, or convert a balloon mortgage for the borrower, although some lenders do offer this option. The borrower can lose the home in foreclosure if she cannot make the balloon payment due at the end of the term, extend the loan or refinance. Foreclosure is the legal method by which a lender gains ownership of a property with an unpaid loan. The borrower does gain equity in the home while paying the 30/15 balloon mortgage, as a portion of every loan payment is applied to the principal balance.
source : http://homeguides.sfgate.com/30-15-balloon-mortgage-2046.html
Broker / Owner of AATRealty