If you are a homeowner that used or are considering using an adjustable rate mortgage to finance your home, there are number things that can go wrong with your mortgage. Here is what you need to know about these risky mortgage offers.
Adjustable rate mortgages are mortgage loans that come with variable interest rates; the lender will adjust the interest rate and the monthly payment amount to the going rate plus their markup at regularly scheduled intervals. The advantage of this type of loan is the low monthly payment amounts (at least initially). Amortization is the process of gradually paying down your mortgagee loan over a period of time. The problem with adjustable rate mortgages is that there are circumstances where this loan results in “negative amortization,” which means your mortgage is actually growing over time.
If your adjustable rate mortgage comes with payment caps that limit the amount the lender can raise your payments; there are circumstances where the cap will prevent the monthly payment from going up when the lender adjusts the interest rate. If the payment cannot go up because of the cap and the interest rate goes up, where does the interest due that you are not paying go? This unpaid interest is tacked onto the balance of the loan; this means your mortgage is actually growing instead of being gradually paid down.
Negative amortization also happens to homeowners with option adjustable rate mortgages that only pay the “optional” payment amount each month. This optional payment keeps their account current; however, it does not cover all of the interest due for that month. The remaining balance due is added to the principal loan amount, resulting in negative amortization.
If you are a homeowner with one of these risky adjustable rate mortgages, you should consider refinancing before your monthly payment, and your mortgage gets out of hand. To learn more about refinancing your mortgage and avoiding common mistakes, register for a free mortgage guidebook.
To get your free mortgage guidebook visit RefiAdvisor.com using the link below.
Louie Latour specializes in showing homeowners how to avoid common mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing - What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
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