For today's blog, we will be talking about what it means when you hear the words Appraised Value, Balloon Mortgage, Cash-Out Refinance, and Default. Keep reading to get a deeper understanding of four terms you want to know when it comes to buying or selling a home. 🏠
Appraised Value
An appraised value is an opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Owners may take actions to improve the appraised value that are more involved than the general upkeep of a property. This may be adding "smart controls", or upgrading the bathrooms with more modern appliances, etc.
The appraiser is most often chosen by the lender, but the appraisal is paid for by the borrower. Understanding appraised value is important for many reasons, as it plays a role in determining other guidelines. Example: The loan to value ratio is based on the appraised value.
To dive deeper into this, check out this article that does a great job at explaining appraised value.
Balloon Mortgage
This is a mortgage loan that allows for low or non-existent monthly payments, but requires the larger, remaining balance be paid at one specific point in time. "The monthly payments, if any, may be interest-only and the interest rate offered is relatively low" (Investopedia).
For example, a loan may be amortized as if it would be paid over a thirty-year period. But, it requires that at the end of the tenth year the entire remaining balance must be paid.
One may want to get a Balloon Mortgage if they know that they will not be in their home long. As a short term mortgage, the payments are low and the overall cost is lower. There are some situations where this is beneficial, but it can also be risky.
To learn more, check out this article on balloon mortgages.
Cash-Out Refinance
A cash-out refinance is when a borrower refinances his mortgage at a higher amount than the current loan balance, with the intention of pulling out money for personal use.
One would want to cash-out refinance if they want a lower interest rate, a higher credit score, debt consolidation and other uses for the cash, or a tax deduction.
There are number of things to consider before making this decision though. A cash-out refinance requires an appraisal, private mortgage insurance, and closing costs. You have to pay the closing costs when receiving a cash-out refinance loan. Other things to keep in mind are that there is foreclosure risks, different loan terms, and you don't get your cash instantly.
To find out more on the cash-out refinance route, check out this article. It does a great job at explaining the elements of cash-out refinance.
Default
The term "default" means failure to complete a debt payment on a loan or security within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Many payments can go into default, including student loans, futures contracts, and bonds. A default can have negative effects on a borrower's credit and their ability to borrow in the future.
To learn more, head over to this educational article.
We hope that this post was beneficial. There is a lot to learn about real estate, but don't let it intimidate you! We are here to help you and guide you through it all. If you would like to start a conversation with The Morris Team about any of your questions, concerns or upcoming real estate opportunities - We would love to talk to you!
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