Avoid Notice of Default – Refinancing Balloon Mortgages
Avoid Notice Of Default – Refinancing Balloon Mortgages – Gainesville Short Sales, What is a balloon mortgage? It is a type of mortgage on which the mature balance is due. Balloon mortgages or loans, aside from the repayment obligation, are somewhat alike to standard fixed-rate mortgages or FRMs.
To better understand this type of loan, let’s say a five-year balloon loan for $100,000 is at 5 percent for a span of 30 years. With the same rate and term, the $537 initial payment would be the same as on an Fixed Rate Mortgage.
The balance of $91,829 on the balloon loan must be repaid after five years. The loan at this point may be refinanced with the existing or another lender or extended at the current market rate.
Balloon mortgages/loans are not that popular in the U.S. unlike in Canada where one-to five-year balloon mortgages have been the standard tool for quite a long time. However, a number of balloon mortgages in the U.S. were written in the years before the financial crisis hit, having balances that will mature in five or seven years, meaning, dues are fast approaching.
Below are some scenarios relevant to balloon mortgages and the action points to take:
Balloon refinancing: Timing is a big issue for those borrowers having balloon mortgages who are eligible to refinance with their current lender or another lender.
Scenario: A balloon payment is about to mature on January 10, 2012 and the borrower tries to refinance with another lender who is consuming much time. The loan might not be closed until the due date on the balloon arrives.
Action point: The lender bearing the balloon will merely charge the borrower with interest for each day the payment is delayed. Frequently update both lenders about the progress.
Refinancing a balloon for underwater homeowners: The borrower having a balloon balance which is greater than the value of the home is facing a more serious situation.
Scenario: The balloon payment is about to mature in December 2012 and the existing balance on the loan is about $150,000. The selling price of the home in today’s market may be at $125,000. Is the lender expected to refinance the mortgage/loan?
Extension of the term at the same rate for five years more will likely be offered. You have the will not to accept the offer if you have difficulty in making payments on this mortgage. Having no other options will compel you to attempt negotiating. You’re direction is to default and this would inflict a big loss on the lender’s end. The best course is to provide you with a refinance.
If necessary, the lender should be willing to relieve your payment problems through loan terms modification. You negotiate on the deal that arises. It will be better to refinance a balance which is about equal to the home’s value. A distinct drop in the interest rate could be your backup. Your lender should perceive that you carry on with two options, refinancing at terms you can afford or acquire a notice of default.
Illustrated below is an example of potential hazard:
A homeowner tried to refinance his first mortgage. He had a second mortgage and paid off $400,000 balance to proceed in taking the second lender’s offer to accept $250,000 as full payment. The homeowner willingly complied believing that it will enable him to refinance his first mortgage. His credit score had been excellent until it was found out that the second mortgage lender had declared to the credit agencies that the transaction and considered paid for less than full balance. As a result, his credit score fell and hindered refinancing of his first mortgage.
Credit score write-downs have been prevalent in mortgage modification programs and even those under the federal Making Home Affordable program are included. The same dilemma is being faced by homeowners with underwater balloon mortgages that are about to mature who choose to take a private modification. One factor that needs to be negotiated on with the lender is how the transaction will be reported to the credit agencies.
No other lender will vouch to refinance an underwater mortgage/loan. The only option is for the existing lender to refinance or else, you will be required to default.
Extension of the term at the same rate for five years more will likely be offered. You have the will not to accept the offer if you have difficulty in making payments on this mortgage. Having no other options will compel you to attempt negotiating. You’re direction is to default and this would inflict a big loss on the lender’s end. The best course is to provide you with a refinance that would allow your payments to continually come and this will help you to eventually pay off the mortgage.
If necessary, the lender should be willing to relieve your payment problems through loan modification. You negotiate on the deal that arises. It will be better to refinance a balance which is about equal to the home’s value. A distinct drop in the interest rate could be your backup. Your lender should perceive that you carry on with two options, refinancing at terms you can afford or going on default.
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Call Stephanie Anson today at 352-260-0153 for a confidential phone interview regarding your options.
Please seek legal advice. This information is for informational purposes only.
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