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 initial period of your loan ends. Many homeowners that financed their homes with these risky variable 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 safe yourself from a mortgage cost crisis.
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Many homeowners purchased homes while the recent housing boom that they plainly cannot afford. These homebuyers noteworthy for the loans using interest only or choice mortgages because they could not qualify for a primary mortgage to purchase their dream home. Buying exterior 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 cost while the interest only or choice period may find they cannot afford the mortgage cost when this period ends. If you have one of these loans you should quote your covenant to find out when the interest only or choice period expires. This timeframe normally lasts for five years; after this time the mortgage will convert your loan to a standard 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 cost will be based on a 25 year cost agenda at the end of the interest only period. Not a big deal right? It means your monthly cost 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 number of your loan than if you used a primary 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 advent up on the end of your initial period and do not know what your monthly cost will be, you should feel 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 think selling your home.
You can learn more about your mortgage options, including coarse homebuyer mistakes to avoid by registering for a free mortgage guidebook.
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