by Jeanette Joy Fisher
It wasn't that long ago when home buyers didn't seem to care about getting into adjustable rate or interest only mortgages. The market was hotter than the Fourth of July, real estate values were escalating at double-digit rates, and a buyer could be accumulating equity in a house whether they were actually paying down their mortgages or not. They understood that the mortgages would have to be paid someday, but with the way things were going, there was no reason to think the good times wouldn't last forever!
But they didn't, just as most economists had predicted, yet it wasn't the interest rates or the types of loans that brought the party to an end. It was payment shock. In short, payment shock is the term that real estate people use to describe the feeling that comes over first-time home buyers when they discover that their house payments are going to be considerably more than they've been paying for rent.
However, a new type of payment shock has begun to surface among people who already bought a home, but recently had their payments go up considerably on their adjustable rate mortgage. If you happen to fall into thus new category, what are your options if you want to get over a severe case of payment shock?
The first thing to do is review the terms of your original mortgage agreement. If your mortgage has a prepayment penalty, it could be as much as 3% of your original loan amount, which would equal $4,500 on a $150,000 loan. That may cause you to do some serious rethinking as to whether it's worth it to buy yourself out of your loan. By doing some checking into 15 and 30-year fixed rate mortgages, you may find that the rate on your ARM is still below what you'd have to pay, as well. It may be depressing, but those are the facts.
If you're planning to stay in your home for a long time, you may be better off getting your payments back to a more manageable level. The first place to check is with your current lender. If you've been good about making your payments, the chances are quite good that your lender will want to keep your business, in which case you may be able to renegotiate your loan or move to a different one with reduced fees. You may even be able to switch loans with no fees, depending upon how hungry your lender is to keep you in the fold and how well you've lived up to your end of the original bargain. Regardless, it doesn't hurt to ask about what your lender can do for you before you go looking elsewhere. Your lender already knows you, and will probably be more flexible than someone new.
Whether you're a first-timer or someone facing an ARM loan increase, payment shock is a real phenomenon, but if you're persistent, you just might find ways to ease the pain and move on with your dreams of home ownership.
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Lake Elsinore Real Estate