Home Mortgage Refinancing Guide

The real estate boom of the last several years was escalated by the Adjustable Rate Mortgage loan.  These loans allowed many homeowners to qualify for mortgages that might not have been able to qualify otherwise.  These homeowners were able to qualify for low monthly payments at 4% interest; however, recent interest rate hikes and lender adjustments are boosting these interest rates as high as 7%.

If you are a homeowner that took out a 15 year mortgage for $150,000 at 4% interest your monthly payment would run about $1100.  The same mortgage loan for 7% interest carries a monthly payment of $1350!  A homeowner struggling to make the monthly payment at 4% interest may find the mortgage payment at 7% completely unmanageable.

The housing marking is cooling and interest rates are rising.  This spells trouble for thousands of Americans that have trouble with their monthly mortgage payments.  According to a survey of mortgage lenders, nearly ¼ of all mortgages on the books now are adjustable rate mortgages.  Many of these loans were underwritten by sub-prime mortgage lenders to homeowners with poor credit ratings.  These are the homeowners facing foreclosure when the payments become unmanageable. Mortgage industry analysts predict the foreclosure boom will be in full swing in 2007. 

If you are one of the thousands of American homeowners tempted by the promise of low interest rates, you should refinance your Adjustable Rate Mortgage before rates rise too high.  Refinancing to a traditional, fixed rate mortgage loan gives you the safety of knowing your monthly mortgage payments will remain the same throughout the duration of the mortgage loan.  To learn more, sign up for our free guide: Five Things You Need to Know Before Refinancing Your Mortgage.

There’s a nasty trend forming in the mortgage industry.  Mortgage lenders offer Adjustable Rate Mortgages with an introductory interest rate of 1.95% that resents to 4.95% after one year.  Sounds like a good deal? 

What the lender doesn’t want you to read in the fine print is that the 4.95% isn’t the full interest rate of this “option” adjustable rate mortgage.  The monthly payment at 4.95% interest is the minimum payment option for this loan.  The remaining interest is added on to the principal loan balance.  This concept of a mortgage that grows over time is called “negative amortization.” 

Negative amortization means you never build equity in your home.  All the money you pay each month goes to service the debt, and it’s not enough to cover all the interest due.  Option adjustable rate mortgages are referred to as the “riskiest” mortgage loans in the industry. 

If you are a homeowner that signed up for one of these loans you should refinance as soon as possible to a traditional, fixed interest rate mortgage.  For more information on a Savannah mortgage refinance, sign up for our free mortgage guide: “Five Things You Need to Know before Refinancing Your Mortgage.”