We’ve all heard and read about easy installment plans. And sometimes the option of making balloon payments, in most real estate advertisements. Installments are the actual cost of the property (plus interest) evenly divisible over a period of time. Balloon payments are a bit different. In some cases, people would think these are an essential feature. While most believe that for high net worthy customers, this could be a great way of scheduling their payments. Besides the real estate sector, balloon payments are for any repayment of loans (automobile, mortgage, etc). These are more common in the real estate sector. And we will explore balloon payments in detail and underline their significance for realty.
WHAT ARE BALLOON PAYMENTS?
A balloon payment is when we pay two or more payments or installments together. It is a feature that is most frequent in mortgage, auto loans, and business loans. Loaner collects it from the loanee during the loan installment period. However, when making balloon payments , this does not mean that the loanee lets go off the monthly instalment plan, rather it is simply an additional payment that is incurred by the loanee.
When you have a loan to repay, such payments are a great way of paying off the debt in the easiest way possible during a smaller time span. For most people on a fixed salary, this could allow for better repayment planning and a chance to buy property without applying for a loan, and paying accumulated interest.
IN REAL ESTATE
In the real estate sector, developers disburse the total cost of the property into monthly installment plans, spanning 1-2 years. At the conclusion of the installment period, all buyers have to pay a balloon payment which is a lump sum amount consisting of development charges, arrears, etc.
The developers collect development charges in addition to the installments which helps them get utility connections , paving and carpeting roads, installing street lights and signs, and developing the commercial areas of a housing society. This is similar for apartment complexes as well.
Balloon payments are an essential part of the property market. However, we do this in combination with a large number of factors, especially with considerations to the country’s economy.