How Risky Are Balloon Payment Mortgages?

From groceries to insurance premiums, the most affordable ones are reserved for people whose finances are already in pretty good shape.  The same rule applies to mortgages.  The most affordable home mortgage loans are called qualified loans.  Before entering into a loan agreement for a qualified mortgage, the lender conducts a rigorous review of the borrower’s financial situation to ensure that the borrower will be able to repay the loan.  Therefore, these loans have lower interest rates and monthly payments that are guaranteed not to increase over time.  The borrower is able to keep up with payments unless the borrower suffers an unexpected financial hardship such as the loss of a job, and even in that case, the borrower usually has so much equity in the house by that time that it is usually not difficult for them to refinance.  Of course, you can only get these cushy mortgage loans unless you are already financially secure; you need a sizable down payment, a steady, well-paying job, or both.  If you don’t have those things, higher risk mortgages such as balloon payment mortgages are your only option for home ownership.  If you are facing an unaffordable balloon payment on your home mortgage, contact  a Jupiter foreclosure defense lawyer.

Balloon Payment Mortgages Are Best for Optimistic Buyers and Opportunistic Lenders

A balloon payment mortgage has relatively low monthly installment payments throughout its term, but the last payment, where you pay off the remaining principal balance at the end of the 10-year, 20-year, or 30-year term, is the balloon payment, which is usually tens of thousands of dollars.  If all goes well, you simply save up for the balloon payment throughout the term of your mortgage, pay down the principal faster than required so that your balloon payment will be lower, or refinance your mortgage for a qualified mortgage before the balloon payment comes due.  In theory, saving up for a balloon payment while paying monthly installments on your mortgage is no more difficult than saving up for a down payment on a house while paying rent.

In practice, most people who get balloon payment mortgages get them because they cannot afford safer mortgages.  Lenders are counting on you not to be able to afford the balloon payment.  If you have a balloon payment mortgage, you need to start strategizing now about how you will cope with the balloon payment, even if it isn’t due for another decade.  A debt lawyer can help you settle your debts or consolidate them, so you can raise your credit score, thereby helping you qualify for a refinance before it comes time to pay the balloon payment.

Contact a South Florida Debt Lawyer About Staying Out of Trouble With Balloon Payment Mortgages

Simply hoping for the best is not an effective way of dealing with balloon payment mortgages.  A South Florida debt lawyer can help you if you have borrowed a balloon payment mortgage loan and do not currently have the funds to make the balloon payment.  Contact Nowack & Olson, PLLC in Boca Raton, Florida to discuss your case.

Sources:

consumerfinance.gov/ask-cfpb/what-is-a-balloon-payment-when-is-one-allowed-en-104/

consumerfinance.gov/ask-cfpb/what-is-a-qualified-mortgage-en-1789/