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.
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