Many homeowners used adjustable rate mortgages to finance their homes due to historically low interest rates. Adjustable rate mortgages allowed many homeowners to qualify for mortgages they would not be able to afford using a traditional mortgage loan. Sixteen interest rate hikes later many of these homeowners will soon find out they can no longer afford their homes.
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that can save you thousands of dollars on your next home loan.
The reason these homeowners are in trouble is either due to the type of adjustable rate mortgage, or the way the lender structured repayment of the loan and the interest rate and payment caps. If you financed your home using an interest only or option mortgage, the period where your loan will have very low payment amounts usually only lasts for three to five years. At the end of this period the lender will add the principle balance back into the loan and adjust the interest rate. This will cause your monthly payment to go up significantly.
For many homeowners that financed their mortgages using these risky mortgages in 2003, the day is quickly approaching when their lenders will adjust their payment amounts. Many of these homeowners are in for a shock when they see the new mortgage payment amount. If this happens to you and you are unable to keep up on your payments you will have to refinance or sell your home.
Your best option to avoid losing your home to one of these risky adjustable rate mortgages is to refinance to a fixed interest rate mortgage. Your payment will go up; however, if you budget accordingly you may be able to head off a financial hardship before it happens. If you cannot afford your mortgage payments now you will not be able to afford a fixed rate mortgage with higher monthly payments; your only option may be to sell your home and purchase a property more suited to your budget. To learn more about your mortgage options including ways to avoid common mortgage mistakes, register for our free mortgage guidebook: “Five Things You Need to Know Before Mortgage Refinancing.”