Do you know about - Adjustable Rate Mortgage: Understand the Risks of changeable Rate Mortgage Loans
If you refinanced your old mortgage or purchased your home with an Adjustable Rate Mortgage, you might wonder what will happen once the preliminary duration of your loan ends. Many homeowners that financed their homes with these risky changeable interest rate mortgages are in for a shock when the mortgage lender adjusts the interest rate and monthly payment. If you are one of these homeowners, here is what you need to know to protect yourself from a mortgage payment crisis.
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Many homeowners purchased homes while the new housing boom that they plainly cannot afford. These homebuyers great for the loans using interest only or choice mortgages because they could not qualify for a original mortgage to purchase their dream home. Buying surface of your means is the first sign of problem when it comes to personal finance.
Homeowners in this situation that can afford their monthly mortgage payment while the interest only or choice duration may find they cannot afford the mortgage payment when this duration ends. If you have one of these loans you should delineate your covenant to find out when the interest only or choice duration expires. This timeframe normally lasts for five years; after this time the mortgage will convert your loan to a appropriate adjustable rate mortgage amortized for the remaining term of your loan.
What does this mean for you? If your mortgage was a thirty year interest only mortgage with a five year interest only period, the mortgage payment will be based on a 25 year payment program at the end of the interest only period. Not a big deal right? It means your monthly payment will be much higher, not plainly because the interest rate has gone up, but because you now have less time to pay back the full amount of your loan than if you used a original mortgage to finance your home.
The bottom line is that you may not be able to afford the payments once your loan is converted. If you are coming up on the end of your preliminary duration and do not know what your monthly payment will be, you should palpate your lender immediately and ask about the change. If you do not qualify to refinance the mortgage and will not be able to afford the payments, you may need to take on a second job or consider selling your home.
You can learn more about your mortgage options, along with tasteless homebuyer mistakes to avoid by registering for a free mortgage guidebook.
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