When you agree to a home loan, where the monthly payments are not enough to pay off the original principal amount, the amount that is still due at the maturity date is called a ‘balloon payment’. In the case of a home loan, if you cannot pay this, you can lose your home.
A couple signs a 15-year note for $350,000 to buy a home. The monthly payment is a manageable $1,800/mo. They are happy. The dirty little secret, and what some people are never informed of is, that the $1,800/month is not enough to pay off the loan and at the end (maturity date) there is still due and owing $180,000. This must be paid, or you lose your home. Do you have the cash? Can you arrange a new loan? If this is unexpected it’s high anxiety.
How can this happen? Businessmen borrow money with balloon payments regularly in arranging financing for their businesses. The problem is arrangments like this can lure unsophisticated consumers into a house, with a low monthly payment, without realizing they can be in a world of trouble at the end of the note. There are disclosure requirements to put people on notice of this, but there are also unscrupulous lenders, who don’t put the borrower on notice that there is a balloon payment, or what that amount will be.
If you find yourself in this kind of a jam, call the Law Office of Elliott Klein for a consultation.