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What's a homeowner to do?

Topic: Mortgage

Have you ever think, how much higher will your adjustable mortgage increase? If you're like many homeowners that took out an adjustable rate mortgage 2-3yrs. ago, that had an initial fixed period of 2-3yrs., if it hasn't already, it will be resetting on the anniversary of when your loan was created. What this means to you, is that you're going to be in for an unpleasant surprise. Now, if you take out a high powered magnifying glass and try to read through your mortgage note, you will see that the lender laid out all the different scenarios of how your mortgage would behave after the initial fixed period has expired- too bad no one actually reads that stuff before the day of closing.

For those of you that are not familiar with how your adjustable rate on your mortgage is determined, it's basically a combination of adding the index + the margin. The index that most adjustable rate mortgages are comprised of, are usually either the "LIBOR" index or the "MTA" index. These indices fluctuate on a fairly regular basis, typically monthly. The "Margin" portion of the equation is fixed, it normally doesn't change throughout the life of the loan, and it basically represents the lender's profit margin.

As you're looking through your mortgage note, you will find towards the back of the document, a page that says "Adjustable Rate Rider", this is where you will find all of the particulars on how your mortgage will adjust, when it will adjust, and how much it could possibly increase, on each adjustment period, over the life of the mortgage.

As you're reading through this document, you will see that the very first increase that will occur, after the fixed period has elapsed, can be "as high as" 3% above your starting interest rate and an additional 1% every 6 months for the life of the loan. So if your initial starting interest rate was at 6.25%, this would mean that it could get as high as 9.25%. This would mean that on a loan amount of $175,000 with an initial rate of 6.25%, your principal and interest mortgage payment would be $1,077. After a 3% increase to the rate, this payment would now increase to $1,439, a $362 increase- and this is just for starters, your rate and payment will now start increasing every six months there after.

We haven't even talked about those poor homeowners that have also had an increase in the property taxes and or homeowners' insurance- can you say YIKES!!!!

What's a homeowner to do?

For starters, you need to get in contact with a mortgage specialist so that they can explore your options for refinancing- there may not be as many as you think. It's important to keep in mind that your ability to refinance and the mortgage programs available to you, will be greatly influenced by the amount of equity that's currently in your property as well as you credit.

With regards to your equity, there are currently large amounts of sellers out there that are desperately trying to sell their properties, both regular homeowners and investors. Since so many sellers are desperate to sell, they're reducing their sales prices by tens of thousands of dollars. This is now greatly hurting the values of the "comparable home sales" that an appraiser must now use, when doing an appraisal on your property, as this is a major part of the refinancing process.

What does this mean to you?

Let's assume for a moment that you have an adjustable mortgage with a balance of approximately $250,000, and your property had an approximate value of $330,000, as compared to other similar properties within a 1/2 mile of your home. From a mortgage lenders point of view, this loan would have favorable loan-to-value (LTV) of approximately 80%, when you factor in closing cost (the lower, the better).

Let's now move forward to present day, where due to "desperate sellers", your home is now valued at a depressing $270,000. Granted, your beautiful home has not deteriorated or gotten worse in appearance, it's just that this is now what "like" properties are now selling for in your local neighborhood- it's not your fault, its just "the market". This now takes your LTV and raises it from 80% to 97%. At 97% LTV, your financing terms will not be as favorable as they would've been at 80%. Your interest rate will now be higher because the lender is now lending on a property that has less equity in it. The smaller the amount of equity in a property, the more risk the lender is taking when doing the loan.

Lenders will typically try to offset this risk by simply charging a higher rate of interest. On top of now paying a higher interest rate, you may also have to get mortgage insurance as well as having to escrow your taxes and probably your property insurance as well. These are all things that will unfortunately increase your monthly obligations on your home.

We didn't even get into the fact that lenders have also tightened their underwriting guidelines thus making it a bit tougher to qualify for mortgage programs.

Do not linger, contact a mortgage specialist to make "FREE" mortgage review for you and then plan your further course of action.

08/06/2007
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Messi
In an interest only' loan you never pay pipcnrial down at all, just pay interest only. when the loan term is over, you still owe the pipcnrial in full. These work best when you're taking out a short term loan to, say, rehab a house that you intend to sell for more than you bought it for, so that you can reap the profit. These loans aren't for the average person. These loans are for various terms, but usually short term (1-6 months, 1 year, etc) and are almost always fixed rate.
read more... 10/01/2012

Paulina
I won't says it's impossible only a ldener who can look at your actual data could say that when people over 700 can't always get , I'd say the chances aren't great. You have nothing to lose by checking into it though. Just go talk to a couple of ldeners and find out. Having a down payment would be a huge help to you.
read more... 05/04/2012

Diganta
yes you will need a social secuirty card first.FHA allows non-scoring borrowers but the rates might not be as well as having a excellent credit score.this also depends on how much you want to put down, and your income.
read more... 05/02/2012

Volontaires
Unfortunately, since you have a combined ciedrt score, they will only report your husband's ciedrt score (since you ciedrt cards are related to your husband's account).My suggestion if you want to have your own ciedrt rating, I would suggest for you to talk to your husband about opening a ciedrt card for your self and not have your husband's name on it.Usually they would put the wife's name on the mortgage just incase the husband can not pay for the mortgage anymore, so yes, your name will be in the mortgage. Just make sure that you have your own job and that you can help your husband pay for it.
read more... 05/02/2012

Zeal
So true. Honesty and everyhting recognized.
read more... 08/10/2011

Read all comments: 5

 

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