If you have ever taken out any type of mortgage loan, then you know that you are subjected to a mountain of paperwork.
There will be a contract, promissory note, right of rescission notice, appraisal and mortgage document, just to name a few.
Having all of these documents placed in front of you at one time can be overwhelming. Unfortunately, this is what causes a lot of people to miss out on some of the terms and agreements buried within their contracts.
One of the items commonly missed is the fact that there is a balloon payment clause inserted within the fine print.
A balloon payment basically states that after a pre-determined amount of time the borrower must pay off the entire balance.
If a borrower doesn’t happen to have the entire balance sitting in his/her bank then they will have to try for financing through another lender.
Unfortunately in a lot of situations, the borrower is unable to get financing when it is time to pay off the loan.
Now they are going through a fire drill contacting a number of lenders in an effort to get their mortgage paid off.
A balloon payment can vary from lender to lender. Some will want the loan paid off within 3 years and others within 5 five years.
Whatever the time frame it can put a tremendous burden on the borrower if they cannot get financing.
During the closing, the borrower may or may not see this particular disclosure. Some see it and think it is no big deal because they assume they will have no problem refinancing in the future.
If you had problems getting financing from this lender then there is a good chance you may have trouble in the future especially if you had credit problems or other things that kept you from being an A-1 or prime mortgage customer.
If a mortgage has a balloon payment due then the alternatives are to refinance the loan or sell the property.
Some times there are reset options featured within the mortgage agreement which means the loan agreement can be reset to the terms of a fully amortized loan at the current interest rates.
Most lenders have some type of stipulations such as no delinquency for a specified period of time. This last option is a good thing to have built into the contract and it can help a borrower out of a stressful situation if they find that they were subject to a balloon payment.
Even though it can be time-consuming it is a good idea to make sure you read all of your loan documents at the closing to make sure nothing is missed.