I ve been paying on my mortgage and my balance went up!?
I ve been paying on my mortgage and my balance went up!?
There are going to be plenty of surprised folks in the near future when they go to sell, refinance, or use some equity in their home and they find out that they ve gone backwards. Some of my new clients have asked me, How can it be that I made my $2000 monthly payment on time each month for over a year, and I now owe $15,000 more than when I started? I even got this great 1% interest rate, they exclaim.
When you got this loan, did your broker or lender mention the words Option ARM or MTA Option , I ll ask them. I typically hear, Uh yeah I think that sounds kinda familiar.
Nine times out of ten, consumers will get hurt if they have various payment options. Payment options are made worse by being coupled with an adjustable rate mortgage (ARM). Very few borrowers have 1) sufficient understanding of negative amortization and, 2) the discipline to make the appropriate payment to avoid negative amortization.
Let me break down what I just said into a bit more detail:
The MTA Option ARM is, first of all, and adjustable rate mortgage. Lenders or brokers that sell this type of loan will certainly use 1% interest rate! as a selling point. Unfortunately, this rate will not last. When the rate on this loan adjusts, it will be based on the monthly treasury average (MTA). Typically, there is a margin that will be added to the MTA (the actual margin on your loan should be disclosed in your loan s note which you received at closing). Let s say, for example, your MTA Option ARM carries a margin of 3.25. Let s also assume that the monthly average yield on the treasury market is 5.25% when the rate is due to adjust; the new rate will be 5.25 + 3.25 = 8.5%.
The Option ARM gives the borrower payment options, hence the name. The three payment options are a normal principal and interest payment (PI), interest only (IO), or a third smaller amount that doesn t even cover the interest charges. With the smallest payment option, the deferred interest is simply tacked onto the loan balance; this is called negative amortization. You now understand how people can make regular payments only to see their loan size increase; they ve been making the smallest payment possible, so they can afford a larger home.
Now, the lender will not allow this increase in loan size to go on indefinitely. It wouldn t make sense for them to assume the risk on a loan when the balance now far exceeds the value of the home. Therefore, once the loan amount reaches a certain percentage of the value of the home, the lender will require the borrower to begin making a normal PI payment. It is very possible that by this time the rate has adjusted from the 1% to 7.5%, 8%, or more. This rate adjustment will also severely impact the new payment. The borrower was used to paying, say, $800 per month. Now they are shocked to find out that they have to start paying $1,800 per month, and the balance on their loan has gone up $20,000.
In this case the people owe more than the house is worth, so they can t sell it. They can t afford the higher monthly payment. Maybe their credit was shaky to begin with, so the easiest this to do is to walk away from the home and let it go into foreclosure.
It is unfortunate that many people found themselves in these loans that can be quite confusing to consumers. Bad loans such as these are major contributors to the extreme number of foreclosures we are seeing now, and the problems in the subprime market.
I have never sold a single MTA Option ARM, and won t (there are only a couple of instances in which one might make sense, but that is beyond the scope of this article). There are very few ethical, honest, high-quality mortgage professionals today. I am proud to be one of the few.
Andrew Sieveke is an experienced and successful mortgage professional. To gain more insight into the mortgage industry, and make yourself a more educated borrower, please visit www.competingloans.net.
CAPITAL LENDING SERVICES, LLC OF BURNSVILLE, MINNESOTA EXPANDS TO THE WEB WITH A UNIQUE APPROACH TO BETTER SERVE LOCAL HOME BUYERS
Burnsville, Minnesota ” September 21, 2007 Capital Lending Services, LLC of Burnsville, Minnesota has recently expanded its Web business to commercial and residential buyers and is offering a variety of lending tools that make it easier than ever to buy or build a new home or commercial property in Minnesota. The company’s new Web site, MyLendingServices.com, spans from a locally-owned mortgage service that has been serving Minnesota residents in a very unique way since its beginnings. The majority of the company’s employees were born and raised in Minnesota and specialize in mortgages for that particular area. They are well-educated in local home and commercial property values as well as the local market trends in lending. This enables the company to give Minnesota residents the best possible service while building trust both online and off-line. “Capital Lending Services, LLC is bringing its services online so we can provide Minnesotans with a Minnesota-based Internet option for mortgages,” states Jason Lamberson, President/CEO of Capital Lending, LLC. The Web site provides helpful tools such as mortgage calculators and easy online pre-approval forms for first-time home buyers, new home constructions, home equity loans, refinances, and commercial loans. The company also specializes in equipment leasing and provides useful resources for home buyers. About Capital Lending Services, LLC The company was founded in February 2006 by Jason Lamberson, a Minnesota mortgage specialist since 1991. Lamberson started the company after selling his interest in another mortgage company. He wanted to start a local mortgage company that would not only provide lending services, but one that would educate Minnesotans on how credit and mortgages work, and how these can affect their lives. Lamberson has been in the mortgage and finance industry since 1991. He worked his way up the corporate ladder with three different large companies. In working with those companies, he became frustrated while watching profits become the top priority, not the customer. Lamberson feels that a company can be both profitable and customer-friendly. This is the approach he took when founding Capital Lending Services, LLC, and it is reason the company has been successful. Unlike many online lenders that often reach out to borrowers around the globe, both the company’s brick-and-mortar office and Web site serve only local Minnesota residents. “We keep all of our lending services local so Minnesotans will never have to deal with someone from a different state, time zone, or country to meet their mortgage needs,” states Lamberson. More information is provided at the Web address below: www.MyLendingServices.com
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California Mortgage Rate Refinance : Part 2 - The Postal Worker Falls Asleep…
California Mortgage Rate Refinance : Months had gone by, and everything seemed to be going so well. Steve’s wife Deborah was getting closer to having their second child. Besides her odd appetite and occasional mood swings, life was almost perfect outside of the day to day issues of politics and other drama throughout the world. Their young son was now 4 years old, and he began to have interests of his own. His parents noticed he had a thing for the piano and started to take him to piano lessons a few times a week. The lessons were not very cheap, but this was simply an investment into their young son’s musical interests. He enjoyed playing the piano, and he actually was pretty good at it. This was the perfect age to allow his inner musician to blossom to it’s fullest. One morning, Steve was on his way to work with his usual cup of coffe and a bagel. While scanning the radio stations, he heard some radio guests talking about the real estate market, and because of the way the economy was changing, there were possibilities that home owners with adjustable rates could see increases. It did not mean much to him, because the tone of the guest on the radio show sounded pretty confident that this would only be in rare cases, and there were no reasons for homeowners to panic at the present time. Steve and his family had a little more money saved up than before, so this was even more of a reassurance for him to feel good about his situation. He turned the station to his favorite jazz channel and really thought nothing else of the matter. When he arrived, he couldn’t help but overhear a couple of co-workers also talking about real estate and the increasing interest rates. Was this something more serious than he’d thought? He hadn’t usually joined the conversations his fellow employees were involved in, so he did not join in this time either. However, he listened a little more closely to see if he heard anything that could be of significance to him and his family. He wasn’t necessarily worried about it, but maybe a little curious. To be continued…
Bio: L. W. Seals (Millennium Products) is a creative writer/researcher. Whenever you need up-to-date mortgage info., tips strategies, secrets, or stories, feel free to visit the Ultimate, Super, Fantastic, Mortgage…Resource Blog! See: <a href="http://ultimatemortgagetips.blogspot.com/2007/04/refinance-second-mortgage-postal-worker.html">California Mortgage Rate Refinance.</a> If you feel this report was useful, please **Bookmark** or share.
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