HOUSEKEEPING
Calculator offers “balloon” scenarios
As Americans wrestle with a declining real estate market and a rapidly changing interest-rate environment, many investors are turning to nontraditional types of loans to buy a home.
For many people — especially those expecting to stay in the home for just a few years — 5/25 and 7/23 convertible, “two-step,” or balloon, mortgages are becoming more popular. Typically, these deals offer lower rates than conventional 30-year fixed-rate mortgages, while still giving a fixed payment schedule for five or more years.
The risk, in the case of balloon payments, is what happens after the five- or seven-year period ends, and you have the possibility of converting your loan. The “balloon payments calculator” at helps a homebuyer see the various scenarios down the road, when the balloon lands. To use the calculator, set your Web browser to .
SHORT COURSE
Yield
In general, yield is the return you get on your capital investment, the total amount of income you earn each year as a percentage of what you put in.
A bond’s yield is the interest the bond pays, divided by its price. Thus, if you buy a 10-year, $1,000 bond paying 4.5 percent and hold the bond until it matures, you’ll earn $45 annually for an annual yield of 4.5 percent, the same as the interest rate.
A stock’s yield represents the dividend per share divided by its current price per share.
