Question: I have a balloon payment due this November. And I believe my house isn't even worth what I owe at this point. Is someone willing to lend in these cases? Should I be shopping for a fefinance this early? I know we are negative, but we love our house and know it will rebound one day, just need to get through this hard time. Any idea's? Thanks, Tomm
Answer:
Generally, a balloon note has a fixed rate and a term of 5, 7, or 10 years. When the loan comes to its maturity, a payment is paid, representing the full loan amount. As you know, you will be required to pay the principal due at the maturity of the note. Your loan should contain a statement of the amount of the balloon payment that will be due. During the life of the balloon loan, periodic interest payments are made. A partially amortized note will include part of the principal. You will want to doublecheck your note to be clear whether you have paid any principal or not. You should also be sure that your note is actually a balloon note and not an adjustable rate mortgage.
Some balloon notes have a reset option. Under this type of note, the mortgage note resets using current market rates and using a fully-amortizing payment schedule. This option may not be automatic, and its availability may be dependent upon certain circumstances. Check your note or call your lender to discuss these options. If your loan does not contain a reset option, your risk is that you may not be able to refinance the amount of the balloon payment because your home is worth less than the balloon payment owed. If you cannot pay the balloon, the risk to your lender is that the amount loaned will not be recouped and issues surrounding a potential of foreclosure become costly and time-consuming.
With that in mind, your lender probably has a keener interest in making a refinance work than another lender who has not yet been involved. In any case, most lenders prefer to work with borrowers. Given your interest in refinancing the loan and your positive approach, your lender will probably be interested in working with you. Call your lender to discuss your options before you call other lenders for comparison.
March 13, 2008
Legal Services Corporation