What to Do if You Cannot Afford Your Mortgage Balloon Payment

by KC Hernandez ; Updated July 27, 2017
Piles of hundred dollar bills.

Most home loans last 15 or 30 years, and the final payment isn't much different from previous payments. Balloon-payment mortgages involve a one-time, lump sum payment equal to the remaining balance on the loan that is due several years before the 15- or 30-year mark. Homeowners who choose balloon-payment mortgages often do so for the initial low monthly payments offered, but they may find themselves in foreclosure when they can't make the final balloon-sized payment.

When the Big Payment's Due

Certain balloon-payment loans come with a "reset" option in which you can modify the mortgage interest rate, monthly payments and the repayment term to avoid paying the lump sum due at the end of a balloon payment's term. If your loan doesn't have a reset feature, you must pay the entire remaining loan balance off by selling the home or refinancing.

When You're Short on Funds

If a lack of equity or your financial situation prevents you from selling or refinancing, you may have to ask your lender for a loan modification. You must meet your lender's requirements to have the terms of your mortgage changed. Lenders aren't required to modify balloon mortgages and consider modifications on a case-by-case basis. In general, you must demonstrate financial need to be considered, but must also have sufficient income to make the modified payments.

About the Author

K.C. Hernandez has covered real estate topics since 2009. She is a licensed real estate salesperson in San Diego since 2004. Her articles have appeared in community newspapers but her work is mostly online. Hernandez has a Bachelor of Arts in English from UCLA and works as the real estate expert for Demand Media Studios.

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