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Friday, December 29, 2006

What You Don't Know About Your Home Mortgage Could Shock You...

This is a concept we educate people on in our business. I encourage everyone to know the facts and where you stand when it comes to your home mortgage.

Take a minute to think about what kind of mortgage you have on your home. Is it a traditional 30-year fixed loan or a loan that has an interest rate that can adjust periodically? Do you know the interest rate you were given? Do you know if it can change?

Many things in our financial lives are uncertain - inflation, energy prices and the cost of living just to name a few. However, with a fixed rate mortgage, homeowners have the security of knowing their interest rate will never go up over the term of the loan. It really takes the guesswork and uncertainty out of understanding your home loan.

During the home buying and refinancing boom a few years ago, adjustable rate mortgage (ARMs), interest only loans and hybrid loans were more popular than ever. However, in today's market of rising interest rate, it's just not beneficial to have an adjustable rate mortgage because the difference in initial interest rates is slim or non-existent. And when you factor in closing costs, the Annual Percentage Rate (APR) is even great on an ARM vs. a fixed rate mortgage.

Could you deal with a 50% increase in your house payment? Probably not! But that's what millions of homeowners could face as the monthly payments on adjustable rate mortgages increase in the near future. The initial periods for making fixed rate payments are coming to an end on mnay of these loans, leaving borrowers to face adjustments of their initial interest rates that can cause monthly paymnets to shoot up between 10%-50% - or more!

Shocking Stats about ARMs

  • About 1.4 million households face a jump of 50% or more in their monthly payments once their initial payment period runs out.
  • An additional 1.6 million face smaller increases that are still likely to strain their finances.
  • About 1 million households eventually sill default and lose their homes to foreclose!

I encourage you to know where you stand. Do you know the following facts about your mortgage?

~The maximum interest rate that you can be charged?
~The maximum that your interest rate can rise at one time?
~The index that is used to determine your rate?
~Your original interest rate?
~How often your interest rate can change?

Okay, so I'm not a doom-and-gloomer...I'm going to tell you what you can do, too. You've seen the risks of ARMs, now look at why a 30 year fixed mortgage could be the best bet for many of today's families:

Fixed Rate Mortgage vs. Adjustable Rate Mortgage

FR - The interest rate stays the same
ARM - The interest rate changes periodically and during the life of the loan. payments may go up or down. Right now, they are going UP!

FR - Longer-term economic prospects play the key roles in the movement of fixed mortgage rates.
ARM - Sensitive to short-term interest rate target set by the Fed. Reserve. The rate can vary dramatically.

FR - Simpler to understand and shield borrowers from the risk of interest rate increases.
ARM - Offer low initial payments, which help some people buy higher priced homes. Buyers often don't understand the risks of an eventually higher monthly payment.

Most people would not be able to bear the financial burden of a sudden increase in their monthly mortgage payment. As the wave of interest rate increases approaches, some people might have to sell their homes or even be foreclosed on and lose their property. If you currently have an ARM, interest only loan or another type of mortgage that could put you at risk for a substantial increase in your monthly mortgage payment, you need to talk with one of to someone about refinancing with a fixed-rate mortgage so you can take the guesswork and uncertainty our of your home loan.

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