I have a loan officer who wants to make a R/E loan for 5 yrs with a balloon payment at a fixed rate. When the balloon payment comes due, he wants to refinance the loan with a higher fixed rate. He doen't want to do an "ARM". My question is. Can he do this? I thought if you refinanced a R/E balloon loan with a fixed rate it had to be at the same rate or a more favorable rate. Correct me if I'm wrong. Thank you...Joyce from Kansas

The answer will depend on if the loan is covered by UCCC. If it is then no he can't refinance at a higher rate. But if the loan is not under the UCCC then yes he can. Since you are in Kansas if you can get your hands on the KBA's book Lending Fundamentals 2005 read the section on the UCCC. There is a whole page talking about balloon payments and when you can raise a rate. If you don't have the book you can call the KBA. They are very helpful. (I am in Kansas also)