Example 5 – Fixed Interest Rate with Balloon Payment – Interest Only
THESE ARE YOUR LOAN DETAILS
The following is a summary of many important details involving the mortgage loan for
123 Main Street, Hometown, USA 00000. Let’s compare these important details with the
Good Faith Estimate (GFE), loan documents, and other disclosures.
Conventional Fixed Rate
Interest Only Balloon
Fixed Interest Rate
Your loan has a fixed interest rate of 7.5%.
A fixed interest rate means that your interest rate will not rise over the life of the loan.
Payment - Interest-Only Mortgage
Your loan payment for interest ($1875.00) and mortgage insurance ($62.00) is $1937.00
and cannot rise. This will not reduce the principal balance of your loan.
You have an escrow account. In addition to any mortgage insurance, your initial escrow
payment is $200.00 for property taxes and homeowners insurance. This amount may
Your total payment is $2137.00 for interest, any mortgage insurance, property taxes and
Your loan payment is due on the 1st of every month and is considered late after the 15th
of every month. If your lender receives your mortgage payment after the 15th, your
lender will charge a late fee of 5% of the overdue payment of principal and interest.
Your loan balance cannot rise.
You have a pre-payment penalty.
A prepayment penalty is an additional amount that you will be required to pay if you pay
your loan off early such as through the sale of your home, refinancing your loan, or if you
make significant additional payments to principal prior to June 1, 2010. Based on your
initial loan amount, your prepayment penalty may be as high as $9,400.00.
Your loan has a balloon payment. At the end of the loan term, any balance remaining will
have to be paid. In the case of a balloon loan, of