The foreclosure litigation attorneys at De Novo law firm can help you determine whether your loan qualifies for a claim under predatory lending. One indication of a predatory loan may be a lump sum payment. This term is called Balloon payments. Usually, the interest rates on these balloon loans are low, fixed interest rates that are found in the adjustable rate mortgages. A balloon loan is set with a period of time, usually seven to ten years and becomes due at the end of the initial term. Balloon loans consist of low monthly payments because principal payments are deferred. Additionally, balloon payments can sometimes result in negative amortization, where the principal balance continues to grow despite continued payments by a homeowner.
There are many advantages to a balloon mortgage but they can also result in default and foreclosure. Most borrowers use loans with balloon payments when they intend to sell their home before the balloon payment is due. Some individuals use allotted years of low payments to better invest and leverage their money. As a result, by the end of 7 years, some homeowners decide to pay their last payment on the mortgages in full. Because many homeowners are not capable of paying back the balance owed, most homeowners choose to refinance. Refinancing can have both a positive and negative effect. Refinancing starts the loan over and usually results in little or no principal balance being paid. However, a new loan may offer better rates and terms saving a homeowner significantly over the long term. Because most homeowners are unable to make the final balloon payment, they have to refinance, sell, or convert the balloon mortgage to a traditional mortgage at current interest rates. If you cannot refinance or sell the property, another option is to consider a loan modification.
On average, a homeowner is unable to make the balloon payments when they are due and must refinance their homes and start a new loan. As a result, a payment with a balloon payment only makes sense for someone who is moving in the short term or someone who plans on refinancing the property. Even if the average homeowner is given the opportunity to have substantial principal payments over the life of the loan, they will still struggle because of the failing housing market. As house prices fall, the odds of the homeowners having positive equity in their homes will also drop and as a result, the average homeowners are not capable of refinancing their home when a balloon payment comes due. The combined result of a balloon payment and falling housing prices can have a dramatic effect on the housing market and has led to numerous defaults and foreclosures.
If you or someone you know if struggling to make their balloon mortgage payment, contact our office for a free consultation and analysis of whether their loan is predatory. Call De Novo Law firm at (951) 801-5570.