Be Proactive about your adjustable rate mortgage

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

In a recent article, the New York Times urges "Homeowners, Call Your Bankers Before They Call You". The article outlines the ways in which home owners can protect themselves from huge swings in their mortgage payment – and avoid foreclosure. Many borrowers feel like there is nothing they can do, and are resigned to the fact that their mortgage will adjust and they’ll be stuck with the higher payment. The reaction of many home owners is to put their head in the sand. If this sounds like you:

Donâ??t despair. There is another way to look at this problem. You, the borrower, are not powerless. â??Consumers get the feeling it is a lost cause to do anything, but it is pretty much the opposite,â?? said Harry H. Dinham, president of the National Association of Mortgage Brokers.

Home owners aren’t powerless. With a little pro-activity many can find solutions to manage their mortgage payment and keep their monthly expenses in check. The key is to take the matter in your own hands.

Homeowners should seek a lower rate or switch to an interest-only loan for a spell. They might even ask for more time to pay, just as long as it does not create â??negative amortization,â?? that is, letting the amount owed increase with each payment.

The article also makes suggestions about temporary buy-down loans, a new adjustable rate mortgage, and a low fixed rate mortgage to help homeowners ride out the turbulence.

Not every home owner facing a change in their mortgage payment will have the opportunity to refinance. Many loans that were done at 100% of the value of the home (loan to value or LTV) such as 80/20 first and second loan combos and no-money down 100% loans will not be able to be refinanced. Many of these loans were taken on the premise that after two years their house would appreciate to a point where there would be enough equity to refinance in to a "better" less expensive loan.

People with poor credit will also find themselves unable to follow this strategy as they no longer qualify for any type of loan. The tightening of credit by Wall Street has made many lenders walk away from subprime loans. The lenders that are still offering subprime loans have made the rates so high (to protect themselves from the increased risk) that subprime borrowers looking to refinance will find that there is no benefit to do so. The payment increase is so significant with a new loan that they are unable to qualify under the lender’s guidelines.

It is these people that will face the unpleasant reality of facing foreclosure, or contributing more than 70% of their monthly income to their mortgage payment, or trying to sell their home in a very tough market and having to pay someone to take the home off their hands at a loss.

All is not lost though. If you can’t refinance and can’t afford your adjusted mortgage payment don’t give up.

But know this: lenders do not want to get stuck with a property. They have to maintain it and then try to sell it on the open market, usually at a loss. Some industry analysts say that it costs a bank an average of $40,000 to foreclose on a loan. That amount gives the borrower that much more room to negotiate.

The final analysis is: if you are in trouble with your home and house payment do not wait. First, figure out if you are headed for an adjustment period. Many people who think they have a "fixed rate" mortgage actually have an adjustable rate mortgage that was fixed for a period of time. Look at your mortgage note and read the details. Pick up the phone and talk to someone about your situation, someone you trust. Find out if you qualify for a refinance in to a loan that protects you from the scepter of a huge housing expense. Most important "Don’t Just Sit There!" take action and then make a conscious decision whether to stay put or make a change to protect yourself.

If you have questions about any of the types of loans or programs that I mentioned above, leave a comment or email me and I’ll be happy to answer them for you. You will not be solicited, I don’t do this to earn business, I do this to help and shed some light on my industry.