Caught In A Balloon Payment Mortgage

by Tina S from Coatesville, PA and by Greta from Wilmington, DE

Ask Kate - Caught In A Balloon Payment Mortgage: Dear Kate, Over the last few years we skipped mortgage payments, paying when we could, and ended up about $25,000 behind on our home loan. Our mortgage company offered us two options during the course of the loan modification, either bring loan current or a mod with specific terms.



Tina continues... Interest only loan for a set number of years, after that point, we would finally be paying into the principal balance. The biggest issue is that in year 2026, we will owe a huge balloon payment of $157,000.00. I have looked for months online for a situation that fits out but have not come up with any information.
Caught In A Balloon Payment Mortgage

We came very close to walking away from our house as my mother was willing to put a down payment on a new house in another state. After meeting with a debt counselor, she asked why we didn't just sign the refinance papers.

I guess her thought was at least we could say in our house. And, trust me, the last thing we wanted was to let the house go into foreclosure.

So, with this being said, here are my questions.

1. How can we refinance with our current mortgage company considering we are currently paying an interest only payment and we have the huge balloon payment?

I can't imagine getting a better deal (the one now is terrible in my eyes) and I am afraid the refinance will make it worse.

2. If the refinance they offer us, is worse, does not signing it allow for our existing terms to stay put?

3. Does the balloon payment become incorporated into the refinance? For example, would we refinance the $310,000.00 mortgage and add the balloon payment to that also?

4. If we stay in the house until the balloon payment is due, what happens to the balloon payment? I assume we refinance? It would be like paying all over again for the house. At that time, my husband will be 66 and I will be 61.

Please help with any advice you may be able to provide. Thank you, Tina

Kate Answers: Caught In A Balloon Payment Mortgage

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Dear Tina,

I so admire you for looking for ways to understand what your bank has offered and how it is going to affect your future.

I believe in some cases, as Kenny Rogers sang, "You got to know when to hold 'em, know when to fold 'em." But only you can decide this!

That being said, let's get to your questions.

1. The balloon payment mortgage is not a new product. In the past and before the collapse of real estate values in many cities, the expectation was that appraised values would sufficiently increase over time. Then lenders could roll the balloon's balance into the new mortgage amount at the time of refinancing.

2. Ask your lender point blank what will happen if you do not accept the loan modification. But with the information you have provided, I am guessing you have 2 choices to avoid foreclosure - bring your mortgage current or comply with the terms of the loan modification.

3. Under the Making Home Affordable program, lenders can put together modifications in creative ways so I can't give you a one-size-fits-all answer. I have summarized the aspects at Special Edition Making Home Affordable Options. Familiarize yourself so you can discuss the options with your lender.

4. When a homeowner refinances, a new term begins. That is why some who can afford higher monthly house payments opt for a 15 year fixed rate mortgage.

Many homeowners today are having to make hard decisions regarding their future plans, especially Seniors. But I do have to agree with your debt counselor. Signing the loan modification papers may or may not work out. So why not play it out? Maybe life for homeowners will revert to normal.

If not and the mortgage payment becomes unaffordable in the future, then you can decide what to do at that time. But for the present, you might get to stay in your house.

Good luck and best wishes,

Ask Kate

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Denied Loan Modification on Balloon Mortgage
by: Greta D from Wilmington, Delaware, US

My mortgage balloons next month. I tried to modify. Started the process over 3 months ago. Just received a denial stating 'it was denied because it was too close to the maturity date'.

After speaking with a Retention Manager she asked me if I wanted to make her an offer. I wasn't sure what that meant. Sounds like they would be willing to accept an amount smaller than what's owed.

Does that happen? What percent of what's owed is usually acceptable?

Hi Greta, Kate here... I don't know whether to be happy or throw up my hands in utter disgust.

A retention manager has asked YOU for an offer? Now I'm POSITIVE that the lending world has lost its course.

But back to you, Greta! I can assure you I have no experience with this type of request in lending. I doubt there's a guideline in Fannie Mae's manual describing how homeowners should be asked to call the shots during the mortgage modification process!

But since she asked, GO FOR IT! Tell her what you can afford in a monthly payment, including property taxes, mortgage insurance (if any), and homeowner's insurance. Then ask her to use that figure to back into your final modified loan amount.

Be bold. Be reasonable. Be confident.

Best wishes, Kate

P.S. Please report back here using the comment link near the bottom of the page to let everyone know of your progress. Good luck!

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You can also ask Kate about your mortgage at Refinancing Advice The Nuts and Bolts.

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