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Balloon or not balloon?

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  • #2400
    pcorder
    Participant

    Can you show me where the definition of a balloon loan is in REG Z or RESPA? I once knew where it was, but I’m having trouble finding it. I’m needing it to clear up the differnce in a balloon payment note that has an ammortization schedule, and a 12 month interest only “temporary” loan.

    Also, if the loan is to purchase a residential property, but secured by a CD and an otherwise existing property (primary residence), with the intent the property being purchased will be the primary residence as soon as the existing is sold…isn’t that a “bridge” loan?

    Getting pretty cloudy here…. 😳

    Thanks!

    #2725
    JGo9
    Participant

    pcorder,

    RESPA address the definition in section 3500.2, but simply refers to the definition in Reg Z.

    Reg Z defines a Ballon Payment in section 226.18:

    (5) Balloon payments. (i) Except as provided in paragraph (s)(5)(ii) of this section, if the transaction will require a balloon payment, defined as a payment that is more than two times a regular periodic payment, the balloon payment shall be disclosed separately from other periodic payments disclosed in the table under this paragraph (s), outside the table and in a manner substantially similar to Model Clause H–4(J) in Appendix H to this part.

    On the Bridge Loan question I think section 3500.5(3) of RESPA will address your issue:

    (3) Temporary financing. Temporary financing, such as a construction loan. The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part. Any construction loan for new or rehabilitated 1- to 4-family residential property, other than a loan to a bona fide builder (a person who regularly constructs 1- to 4-family residential structures for sale or lease), is subject to this part if its term is for two years or more. A “bridge loan” or “swing loan” in which a lender takes a security interest in otherwise covered 1- to 4-family residential property is not covered by RESPA and this part.

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