Real estate Q&A: Refinance to avoid balloon payment
FORT LAUDERDALE, Fla. – July 1, 2014 – Question: Due to an illness, I had to work out a loan modification with my mortgage lender several years ago. The modification significantly lowered the payments, but it requires that we pay off the remainder of the balance at the end of the loan term as a balloon payment. It's coming up soon, and I don't have the money to make the payment. What can I do? – Aretha
Answer: This sounds scary, but you have options. It has been very common for mortgage lenders to offer this type of loan modification. The lender requires only that you pay interest and principal on a portion of your loan in order to get you to an affordable payment amount and defers repayment of the remaining portion of the loan – along with any missed payments – until the end. On the maturity date, your last payment would be the total of all of this deferred money.
If you don't pay this huge last payment, your loan will be in default and you will face foreclosure. Fortunately, you still have time to prepare for this eventuality.
The best thing to do is work to clean up your credit and refinance your loan prior to the maturity date. This new loan would pay off the old loan and spread your payments out over many years at a payment that you can afford. You should check with several banks now to see if you can do this right away while interest rates are still very low.
If you are unable to do this because of credit or income limitations, you should start trying to work with your current lender to see if it will further modify your loan to keep you making payments and extending the maturity date.
About the writer: Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program.
The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.
Copyright © 2014 Sun Sentinel, Gary M. Singer. Distributed by MCT Information Services.