If your loan term is shorter than the length of your amortization, there will still be a significant amount of principal outstanding on the loan when it matures.You will be required to come up with the cash to pay off the loan, or obtain a new loan by refinancing to pay the outstanding debt.To give you an idea of how an arbitrage loan is made here is an example.Basically, an Arbitrage Loan, looks like this: All of the above actions take place SIMULTANEOUSLY at the closing of the loan, which is arranged by the " Escrow or law firm " for the Boutique Investment Banker who put the deal together.
In finance and economics, liquidation is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations as and when they come due. Bankruptcy Code governs liquidation proceedings; solvent companies can also file for Chapter 7, but this is uncommon.
This page Self-Liquidating Arbitrage Loans (Source: Andrew Scully) You don't have to be rich to get an Arbitrage Loan. Needless to say, you have probably seen hundreds of offers over the past ten to twenty years - but have you been able to get a Self-Liquidating Loan? Because there's many con artists associated with this investment technique. You can get a loan and make money through some arbitrage and hedging.
Its a loan where you profit from the spread between interest rates.
These are known as “balloon” mortgages, named for the substantial balloon payment due at maturity.
Many borrowers expect to refinance when their loan matures and the balloon payment comes due, but circumstances do not always allow it.