Mortgage Secrets
Non-traditional or
“exotic” home mortgages are accounting for almost 40% of home mortgages
today as home buyers try to get expensive houses at the lowest monthly
payment. Affordable monthly payments are important to cash strapped
home buyers trying to buy homes with inflated prices these days.
Unfortunately, all too many of these non-traditional mortgages are now
going into default as interest rates increase and property values level
or decline.
It is important to
look beyond the initial low monthly payments to see what the future will
bring. Many lenders today offer home loans that allow consumers to pay
only the interest on the loan during the first few years of the loan
term; or make only a specified minimum payment that could be less than
the interest cost of the loan. Lenders have a variety of names for these
loans, but with interest only mortgages and payment-option adjustable
rate mortgages, consumers could face "payment shock." Monthly payments
may double or even triple following the initial interest-only period or
when the payments adjust.
Your mortgage
broker won’t necessarily tell you what you need to know about these
nontraditional home loans. Don’t let the allure of a low monthly
payment draw you into the quicksand of home loan payments you cannot
afford. Your mortgage broker wants to make a sale. He or she wants the
commission. They really don’t spend much time worrying about what
situation you are going to be in 12 months down the road when your
payment skyrockets. They’ll be working on another deal while you may be
working to make ends meet.
The best thing you
can do before you even apply for a mortgage is to read what the
FDIC has to say about these nontraditional home loans. The FDIC has
a great
handbook for Adjustable Rate Mortgages as well.
Estimate what the
monthly payments will be when the interest only or special payment deal
ends. If you can afford those payment amounts then the deal may be
okay. If you cannot afford those payments now, you need to look very
hard at not taking out such a large mortgage today. You also may be
able to put caps on the rate adjustments that can act as insurance while
you hope your income will grow to meet the higher rates.
Mortgage Purchase or Refinance
Home owners are
already paying the piper. First American Loan Performance, a
mortgage-data company based in
San Francisco,
says in October 2006 that overall the national foreclosure rate has
climbed 27% from a year ago with an estimated $110 billion worth of
homes expected to go into foreclosure.
According to
Comsumerafairs.com many foreclosure victims are finding themselves
caught between the rise in interest rates and falling home prices. Of
these, there are three types of borrowers that get in trouble:
• Those with "teaser loans" that have highly discounted initial
payments,
• Those whose down payment is 15 percent or less of the purchase price,
and
• Homeowners with more traditional adjustable-rate loans but who put
down only 5% or less.
The problem stems from their lack of
equity in the homes, especially if they want to refinance adjustable
rate loans when those rates go up.
What are your
alternatives?
Don’t let the
dream of homeownership become a nightmare. Here are three alternatives
to getting in over your head and risking it all:
-
Buy a less
expensive property. An old rule of thumb that still holds true is to
buy the smallest or least expensive property in a neighborhood. The
more expensive homes tend to buoy up the value of the smaller home.
-
Become a
landlord by buying a duplex or triplex. It is a great way to
start your property empire and get rich in real estate.
-
Be frugal.
Apply the multitude of
ways to save money on this website. Increase your savings to the
point where you can afford to put more money down on a home, afford a
traditional mortgage at good rates, improve your FICO credit score and
afford to buy a home and keep it.
Get All 3 FICO Scores and Credit Reports!
Free FICO® Credit Score Estimator
If you are in over
your head, here are some tips to
avoid
home loan foreclosure.
