A friend of mine recently received a loan mod from Citi bank for his house. He was ecstatic as he received an in house loan mod that he had been trying to get for over a year. He starts to tell me the terms, payment dropped by approximately $1,600 per month for the first year and goes up each year with the interest rate (starts out at 2%, then a 1% increases per year up to 5% for the remainder of the loan). I thought he received a great deal and was real happy for him until he started talking about all his missed payments, penalties, fees, etc that the bank was so generous to roll into the loan for him. I thought that still was an OK deal because his payments are affordable now and then he dropped the bomb. At year 30 of the loan he has a balloon payment of ~$400K!!! the bank set him up! At year 30 if he does not have the money the bank will take the house or he will have to sell it to pay the bank, if he keeps it that long. If he decides to sell before then he will have to pay off the loan and the balloon payment, and I don’t even want to think what would happen if he defaulted before then.
These situations are really tough to go through and to get an offer from the bank is truly a relief, but please be careful on what the banks are doing so that you don’t have something haunting you for the next 30 years. Keep things in perspective, it is only a house, and there are lots of them.