Sometimes the best loan modifications are scary for our clients. In particular, a loan modification with a balloon payment at the end of the loan is a great result for a borrower who cannot afford to pay a mortgage payment on the full balance of the loan even if the interest rate is reduced. While the lender may be reluctant to reduce the loan balance, although this is also a possible outcome; the lender may be willing to “balloon” out a portion of the balance of the loan without interest.
Therefore, the result is a borrower can stay in the family home with monthly payments that are far less than it would cost to rent a similar residence and the borrower will have a “balloon” payment owed on the balance when the house is sold or when the loan is due, whichever occurs first. Even though making a large balloon payment may seem scary, if the Borrower can live in the house for 20 or so years before the balloon amount is due, the house could go up in value or perhaps the lender will negotiate a new loan modification at that time. The important point to remember is that in these situations, the future balloon payment is being offered because otherwise the borrower could not afford the loan payments and would ultimately lose the home.