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Friday, August 17, 2007

You Are NOT Alone

YOU’RE NOT ALONE IF YOU’RE HAVING
TROUBLE PAYING YOUR MORTGAGE

The housing boom led to a record homeownership rate of
nearly 70 percent, but some homeowners now face problems
making their mortgage payments and can’t refinance their
loans. Over the last few years, lenders invented new types of
mortgages to help families buy their first homes and refinance
their existing mortgages. Many of these mortgages helped
families without cash for a down payment, or with less-thanperfect
credit, qualify for loans known as “subprime” loans.

Subprime loans have a higher interest rate and higher costs,
such as prepayment penalties. A very popular, widely available
mortgage product is the hybrid adjustable rate mortgage
(ARM). Hybrid ARMs have an initial period with a lower
interest rate (“teaser rate”) followed by significant increases
over the remainder of the loan. The hefty payment increase is
often called “payment shock” because the borrower is surprised
by the size of the increase and can’t afford the new payment.

If you are having trouble paying your mortgage for any reason,
or expect problems, you should work with experts and your
lender to find a solution now. If you fall behind and don’t take
action, the lender will foreclose on your home. If that happens,
you may lose your home and all of the money you have already
invested in it. The sooner you act, the better the chances you
will avoid foreclosure.

The Center for Responsible Lending estimates that 2.2 million
American households with subprime mortgages have lost or
will lose their homes as monthly payments rise on high-risk
mortgages. These families stand to lose as much as $164 billion
of equity in their homes.

MORTGAGES WITH “PAYMENT SHOCK”
Mortgages like these can give you a “payment shock”:
• 2/28 and 3/27 Mortgages. A 2/28 or 3/27 adjustable rate
mortgage gives the borrower a fixed payment for the initial
two- or three-year period before adjusting the mortgage up as
often as every six months. After the initial “teaser rate” period,
your mortgage payments typically adjust up every six months.
• Interest-Only Mortgages. An interest-only mortgage lets
you pay only the interest on the loan for the first 5 or 10
years and nothing to pay off the loan amount (principal).
After the interest-only period, the mortgage requires much
higher payments covering both interest and principal that
must be repaid over the remaining years of the loan.
• Payment Option Adjustable Rate Mortgages. Payment
option mortgages let the borrower decide how much to pay
each month. You can even pay less than the interest, and add
the unpaid interest to the total amount of principal you owe.
Or you can pay just the interest or an amount sufficient to
pay off the loan in 15 or 30 years. These mortgages can have
an especially big payment shock.
Be careful if your mortgage has any of the following features:
• A “teaser rate” or “no interest” period that expires and leads
to a big jump in your monthly payment.
• An option to pay less than the full interest due in any given
month. Taking that option makes the amount you owe go up
instead of down, since the interest you don’t pay is added to
your loan balance.
• An adjustable interest rate with very high or no limits on the
amount your payment can go up.
• A payment that doesn’t include an amount for paying
property taxes and homeowners insurance. This means
you may be hit with big bills you didn’t expect.

If you’re in trouble, call 888-995-HOPE

Source: National Association of Realtors®