Too Good to Be True: Downfalls of the Balloon Mortgage

October 24, 2018

Many people don’t fully understand the terms of the mortgages they are agreeing to when purchasing a home. This may lead to foreclosure of the property when repayment becomes burdensome or simply impossible. This is especially true of the "too good to be true" Balloon Mortgage.

What Is a Balloon Mortgage?

Let’s begin by first looking at the conventional 30-year fixed mortgage, and comparing. This standard mortgage allows most homeowners to refinance, pay off, or sell the property before the 30-year period is over. Fairly straightforward. On the other hand, a balloon mortgage starts off with a lower interest rate (or interest only) and a payment plan that is extremely affordable to most individuals. The number of years for such mortgage can range. The main pitfall to the balloon mortgage is that upon the loan’s maturity, the full balance (principal and interest) of the mortgage and promissory note becomes due.

The Problem with Balloon Mortgages

When the loan reaches maturity, the full balance is due regardless of whether the homeowner has the money to pay it. This is often difficult for something with such acceleration in payments. For example, a homeowner can pay a low cost of $500 per month for 10 years, but at the end of that tenth year, a whopping $100,000 can be automatically due to the Lender (within the regular late period terms). This situation leads many individuals into foreclosure or bankruptcy since they cannot pay this lump sum. Moreso, individuals who pursue these types of payment plans are typically not financially well-off to begin with. Paying the “balloon” payment or amount due upon the maturity of the loan would destroy their limited finances.

Be Wary of Balloon Payments and Interest-Only Loans

Prospective homeowners must look to the future and determine whether they will have the financial resources to repay the loan once the maturity date is reached before agreeing to a mortgage. Accordingly, homeowners who are near their maturity date or at their maturity date with a balloon mortgage should contact a knowledgeable foreclosure attorney to ensure that their rights are being represented. A foreclosure attorney may be able to provide a homeowner with options to preclude their home from entering foreclosure.

Our Experienced Foreclosure Attorneys Can Help

If you or someone you know is in jeopardy of foreclosure, contact the attorneys of The Ticktin Law Group to assist you. Our firm offers complimentary consultations to assess your case and see if we can help your foreclosure situation. Call (561) 232-2222 or complete our contact form to get started.