Balloon Payment Mortgages: What Can Stop Them from Resetting?

If you have a mortgage with a balloon payment at some point in time you will be faced with a situation which calls for you to pay off the entire balance. Prior to the balance becoming due you pay your standard monthly payments with a portion going to interest and a portion going to reduce your principal balance. If you don't have the funds to pay the balance in full there are several other options available.

The first option is to sell your property. If it's a slow market this can be difficult. You could also refinance if you qualify. A reduction in the value of your home could keep you from qualifying due to the reduction in equity.

Finally you could have the mortgage reset. This process calls for the entire balance to be fully amortized when the balloon payment comes due. This may nor may not be an automatic process. In come cases you may have to qualify. So what are the things that can disqualify you from a reset?

Owner/occupant

Check your loan agreements when you sign your mortgage deed and note to what is required. Your mortgage holder may require you as the owner of the property to be the occupant. Therefore if you are renting out your home there is a good chance that you may not be able to have your mortgage reset.

Late payments

When you are making your mortgage payments make sure you are making your payments on time. If you have any 30 late payments in the past 12 months prior to the balloon payment you could be disqualified from a reset of your mortgage.

Liens

Hopefully you will not have incurred any additional liens on your property. If you had some work done such as remodeling the kitchen or bathroom or a room addition there is a good chance that the contractor may have filed a mechanics lien against your property to ensure payment. Any type of lien at all could prohibit you from a reset.

There could be a number of different things that can stop your mortgage reset. Always find out in the very beginning when you sign your mortgage documents. When a balloon payment comes due you want to be in a position that allows you to take advantage or utilize all of the options that are available to you especially a reset. Find out if there are other factors that might keep your mortgage from a reset.

A reset is when the remaining balance on the mortgage is now fully amortized for the remaining term. A portion of the payment will go to interest and some to principal however at the end of the term the entire balance will be paid off. Resets take place using the current market interest rates.