Need Help understanding Balloon Payment

[Cali5]

First of all, I am so grateful for this forum. Thanks Moe, *** for all your help. I agree with paying it forward. I will also try to welcome newbies and help them out more often than I can.

I'm trying to understand this Balloon Payment. I received an offer for loan mod from Indymac/One West. I recently had my hours and days cut due to California budget cuts. The offer is $1587 a month at 3% fixed for 5 years then to adust 1% starting the 6th year capped at 5.375% for 40 years. $51K is deferred until I sell the house.

My question is the offer states that I will be required to pay in full the Balloon payment of $250K upon the earliest of (i) the date that you sell the property, (ii) the date that you refinance the property, (iii) the Maturity date of 2037

This seems to me like a reverse negative amortization. Please, any insights would be greatly appreciated. Say, I sell in 5 years. Does this mean I have to come up with $250K on top of my balance on the house? Sorry for sounding dumb. I am really not understanding this...

[SillyWorld]

Unless there numbers are wrong, you said 50k but sell in 40 yrs you owe 250k looks like the Balloon at end is interest added on for the 40 years, so you owe 50k no matter what, the day the mod starts whatever the INT% on the balloon is there would be an adjustment if lets say you sold in 20yrs to looks like you would owe $150,000.00 as 200,000.00 is the inetrest only for the 40yr divide interest by 40 and it shows you owe them $5,000.00 a year interest on the 50k that is hidden till sale

[Cali5]

Thanks for your insight Sillyword! The new principal balance would be $480K. It says my new monthly payment will be sufficient to pay $228,545 of my principal balance. So approx $250K is balloon payment. Say in 5 years, I want to sell. What are my responsibilities?

Moe, *** any insights?

[faith]

Baloon payment means the final lump-sum payment of unpaid principal remaining at the end of a baloon mortgage and in certain types of leases. The extra payment extinguishes the debt.

A balloon payment occurs when a loan is not amortized. It is generally an early due date, involving the payoff of an existing loan balance. Interest-only loans, also known as straight notes, generally contain a balloon payment provision.

For example
A $200,000 loan may be amortized for 30 years, but due and payable in five years. This means the buyer will make amortized payments, based on a 30-year payment plan, but the loan balance will be due in five years instead of 30, resulting in a balloon payment.

Because the biggest portion of a principal and interest payment in the early years of an amortized loan is interest, a five-year balloon payment will be close to the original unpaid balance. If only interest-only payments are paid, the original unpaid balance will be the balance due at the end of the loan term.

Source: Dictionary of business terms

[Cali5]

Thanks Faith! After reading my loan mod offer last night several times, I now understand it. What do you think of this offer? Most likely we will accept this offer because we love our house. We've been here for 5 years. We have many fond memories here.

Also, please, anyone, give me your honest opinion about this offer before we sign on the 24th.

[faith]

Cali5,
Please check the links below to give you more information about balloon payment. I hope you make the right decision regarding this matter. You should also ask the lender to explain in detail about this very important matter.

http://www.homeloanbasics.com/articles/PurchasingAHome/TheTruthAboutBalloonPaymentLoans/>>

http://news.cincinnati.com/article/20090620/LIFE08/906200320/-1/today/40-year+mortgage+a+good+deal+or+a+joke>>

[Cali5]

Faith,

Thank you sooooo much!!!!

[faith]

Originally Posted by Cali5

Faith,

Thank you sooooo much!!!!

Cali5,
Thank you for sharing your story. Here's some more tips for mortgage scams.

Please click the link below.

Straw Buyers and Other Mortgage Scams

Just an information homeowners nowadays need to know.

Thanks,