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A balloon rider is usually an addendum to the “note” – the document that describes the terms of the loan that is signed at closing. This should match the terms on the application signed at the beginning of the process. Generally, I would assume that the presence of this rider indicates that the loan has a balloon feature – that after a certain time period, the full remaining principal is due as one lump sum. In past years, many loans were written on 40 or 50 year amortization calculations – to make the payment less expensive in the beginning for the borrower- but some lenders still require that the loan be paid in full after 15 or 30 years. In this case, the remaining balance of the loan (that was not paid due to the lower payment schedule) is due as a lump sum in the final payment. The lender expects that if the borrower had not already done so by that time, they will pay off the balance from their savings, or sell the home, or refinance the debt into a new loan at market terms. The rider should be very specific about the date when this lump sum is due.
A balloon rider is a contractual addendum to a mortgage note that would be executed at closing. At the end of the mortgage note, there will be checkboxes next to the applicable riders to the mortgage note (2-4 family rider and such). If the loan has a balloon feature, the checkbox next to the balloon rider will be checked and there will be a balloon rider after the mortgage. This will mean that there is a balloon feature in the mortgage and when that balloon occurs will be outlined in the terms of the note.
If one if finding out about a ballon feature in a loan by reading a balloon rider, something has gone awry. It should have been disclosed on the Truth in Lending disclsoure. Many states (i.e. CA) also require separate lending disclosures for balloon mortgages as well.
what is a balloon rider? is it the same as a balloon mortgage?