What's happening and why?
The type of home loan you have lets you make payments for a set amount of time or “term.” Typically, the full amount borrowed, as well as some fees, will not be completely paid off when the term ends. The term’s end is also called the loan’s “maturity date.”
When the term ends, the remaining balance will be due in one lump-sum payment, and the amount may be substantially more than you’ve been paying each month. This is sometimes called a “balloon” payment.
Also, if you had a loan modification and have only been paying principal and interest on part of your loan, the full balance on the other part of the loan may now become due. Here’s how:
- As part of the modification, a $100,000 loan was split into two parts — a $70,000 portion and a $30,000 portion.
- A fixed monthly principal and interest payment was only required on $70,000 of the balance, while principal and interest payments were deferred on the remaining $30,000.
- Each fixed monthly payment made towards the $70,000 and any additional amounts you may elect to pay reduces its remaining balance until eventually the amount due is less than the monthly payment.
- At that point, the final monthly payment, as well as the full repayment of the remaining $30,000, are due in a single, lump sum.
There also are other circumstances where a balloon payment may become due. Because each person’s situation is unique, please give us a call to discuss how your account is affected.