Mortgage payment calculation

[cgallery]

If hyperinflation strikes, that $30k in 2020 may be very doable.

I'm only half joking.

[docrowan]

Ballon payments have their place has a financial tool, just like backhoes have their place as a digging tool. The trouble is it's a lot easier to sell (swindle?) a ballon payment to a person who has absolutely no use for it than it is to sell a backhoe to the average homeowner to but in his shed.

[radhak]

Sparky, looks like this might be something the computer spits out as default.

I helped my friend during his house-buying in 2005, and we don't remember anybody mentioning balloon payment, particularly because we kept our ears open for anything unusual in the terms; he wanted a very straight-forward loan. I am particularly peeved at this as it seems I never read thru those 35 pages before he signed it (and I take pride in being retentive about contracts).

To his credit he's taking it better, even trying to console me ( ), 'well, at least you caught it now'!

We agree that the worst part is the interest that has mounted on the 'unpaid' amount.

A regular calculation would have seen him pay $376 every month, to a total of $67k after 15 years, which works out to a total of $27k in interest. If he starts paying $400 a month now, he'd end up paying a lumpsum of $5000 at the last month, for a total of $31k as interest.
Not as bad as what could have been, but still an unjust 'reward' to the bank for being sneaky!

I have suggested that he check his finances and see if he could pay an extra $3000 now. That would reduce his total interest to $27k, and he'd not have any lumpsum at the end (actually, his payments would run out 4 months in advance)!

His loan is under-water, so he cannot refinance. And there is no penalties for pre-payment (in part or full).

[Sparky2002]

It was one of many programs they offered on the table. I had a set dollar amount in mind for the monthly payment and my broker was up front and told me I would have the ballon due at year 15, but the minimum payments were based on 30 year. If left me with the oppurtunity to pay a little less if I needed in a month for Christmas or vacation for example.

But I will say this the mortgage brokers business is a business that needs more oversight. My wife and I bought our townhome in 2005, during the housing boom days. We found a good bargain, a house we liked. I knew what I wanted for a mortgage, an 80/20 first and second mortgage. I told my broker what I wanted, I did my research; I thought I was well informed. Close to the closing date, he says his company will not due 80/20's on PUDs (planned unit development). He switches us to a 3-1 ARM. Young and stupid I say I will deal with it later, I did, but it cost me more cash down the road and I did an 80/20 a few years later. The original broker lied to make more money. So it seems the end purchaser needs to watch for himself because sometimes that is the only person who is watching out for you.

Sorry for the rant, but I feel people need to be more aware of what really went on during the earlier part of the decade. I do hope things work out for you friend. Time is still on his side.

[MilDoc]

Are you SURE he didn't sign up for a balloon payment loan? Maybe didn't intend to, but that's what he got.

Only one solution: make higher payments. Or owe the $$$$$$ on payment 180. Or, of course, sell the house and move.

[gjat]

radhak,
I think you and your friend have the right idea. Pay as much as you can now to get the extra mortgage paid off first to pay the least amount of interest to the blood suckers. The principal would have to be paid anyways, so the earlier it's paid, the less profit they would get.
Anyways, the housing market has probably already bottomed here in Florida, so in 4 or 5 years he probably could easily re-finance.

[toolguy1000]

caveat emptor..."let the buyer beware". the only person who ever looks out for you is you. i have a simple business and personal life philosophy...trust no one! the only person i will "trust", especially in a real estate transaction, is the real estate lawyer i bring to a closing with me. i view all transactions as wars and, when i go to war, i want the biggest and baddest warrior with me. having been part of many transactions, i also read all the documents myself and make sure i understand them all. even lawyers make mistakes. but i still want one with me , even if its just a simple refi. never be afraid to walk away from a transaction. no one ever gives you a deal that is too good to be true. if it seems like it is, you've overlooked something. and never part with any serious money until the last possible moment. rant over.

[cgallery]

the only person i will "trust", especially in a real estate transaction, is the real estate lawyer i bring to a closing with me.

Then you're still hosed.

I've have receive bogus information from more than one attorney, and multiple CPA's, as well.

50 years ago my father took a blue-blooded attorney from one of Milwaukee's most respected law firms with him to his closing.

My father didn't understand this new "variable rate mortgage" thing the bank tried to hide in his contract. The banker told him it was just a formality, and my father's own attorney said "its unenforceable."

At which point, my father said, "if it is just a formality, and it isn't enforceable, you guys won't mind if I just cross it out." The banker had painted himself into a corner, and watched as my dad just struck it on all the copies.

Good thing he didn't take the attorney's advice as it would have cost tens of thousands of dollars over the life of the loan.

So my advice is to even question what the attorney tells you.

Question everything.