According to a recent Wall Street Journal article which quotes industry giants Bear Stearns and Credit Suisse, mortgage delinquencies continue to increase, showing even greater indication that Americans are living beyond their means. Here is a link to that article: http://www.azcentral.com/business/articles/0518mort-late18-ON.html
We all should have seen it coming given the rise in home prices over the last several years which caused people to buy with Adjustable Mortgages, now paying heed to the fact that they have only a short fixed period. Now that rate are at their higher level in several years, refinancing these mortgage into loan with reasonable payments is even more of a challenge as this would tend to increase payments to already strapped borrowers.
So what is the solution?
For starters, if you find yourself in a position of having trouble making an upcoming mortgage payment, by all means, DO NOT IGNORE IT! I have never understood why people seem to think a problem will go away by not addressing it.
Here are several things to consider when in this unimaginable situation:
1. Call your loan officer. He or she should be able to provide you with some counsel.
2. Call the bank and let them know you are having financial difficulty. Trust me, it is better for you to call them than for them to call you about a late payment.
3. Take a hard look at your budget. There are very often places to cut back in your budget such as eating out, getting your nails professionally done, dry cleaning which can be replaced by ironing, etc.
If you need professional budgeting help, get it. There are certainly free resources available, but one source that I recommend is the Financial Freedom Society. In fact, I have arranged for my clients to have a FREE 10-day trial subscription to their service, which you can access by this link:
http://www.ffsi.com
4. Protect Your Credit Rating. One of the worst negative marks you can get on your credit report is a late mortgage payment. By all means guard against this.
5. Increase your income. I know this is more simple than it sounds, but if you run your family budget like a business in terms of "receivables (income) and payables (bills)", you will see that one HAS to change to be successful. You either have to decrease your expenses or increase you income on your own (by budgeting), or you will be forced to do this through bankruptcy.
6. Look into a different mortgage option. In case you haven't heard, we now have several mortgage options to assist people in this situation. As the problem has persisted, the mortgage market has responded with several new mortgage types. Here are a few of them:
- 30 year Interest Only Mortgage - This will help you by providing a fixed interest Only Period of 10 year. The "piper comes" in year 11, when the balance is re-amortized for the remaining 20 years. The question to ask yourself is where you think you will be in 10 years, and whether or not you can obtain a better rate by just getting a 10 Year Interest Only ARM.
- 40 Year Mortgage - Just like it sounds, this is a loan amortized and paid off over 480 months. This will help those who plan on living in their properties long term, but giving them a reduced payment (usually a higher rate, but over a lower term which results in lower payments).
- 50 Year Mortgage - Currently 50 Year mortgages are making their way into the market. These loans can provide additional relief as they are amortized over 600 months, however most have a demand feature where they need to be refinanced after a short fixed period of two, three, or five years. I am sure this will change as time goes on.
I hope this is helpful. If you have any questions, you can always reach me at anthony @ atozlender.com
Make it a great day!
Anthony
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