Law of the West
December 10, 2007
We have all heard about it ” the crisis facing many in our communities today is how to make your monthly mortgage payment. Foreclosures in the region and the nation are rising dramatically. The rise is being blamed in part on adjustable rate mortgages doing what it is their nature to do … adjust. And, let’s face it, after the long period of very low interest rates, those adjustments are only going in one direction ” up. The increase is often such that it outstrips any increase in income over the time since the mortgage was obtained. The result is now, instead of 25 percent of your paycheck headed off to the mortgage company, it might be 50 percent. Most folks can’t sustain that shift in expenses for long and not fall behind.
So what are some strategies to help in trying to avoid a personal financial crisis?
The first and foremost is be informed. Read that mortgage you got two, three or four years ago and determine its nature. Is it a fixed rate mortgage? If so, rest easy. As the name implies, the interest rate is fixed and your payments likely will only shift as your insurance and property tax obligations change impacting your loan’s escrow account ” if it has one.
If the mortgage is an adjustable rate mortgage or some other “creative” financing arrangement, you need to get informed about how your payments may change over time and what factors and market conditions may create those changes. In most cases of adjustable rate mortgages, or ARMS, the first change in your payment is at three or five years. There may be additional changes after that on a periodic basis, or the rate may fix. There may be a provision where you can fix the rate for the duration of the mortgage for some payment today. There are a whole variety of possible mortgage provisions and it is impossible to give anyone a general rule of thumb.
The best thing to do is to take all those documents you got when you closed your loan and head on out to your accountant or family lawyer. Have them review the documents and determine exactly what type of loan you have and how your payments will change in the future. With that information in hand, there are some things you can do if that analysis tells you that a personal mortgage crisis is looming.
First, you should see about the possibility of refinancing your loan into a more traditional mortgage ” a fixed rate for a fixed term. With a good payment history to date and provided your home has not lost considerable value since it was last appraised, averting the hardship of your current mortgage is relatively simple. In some cases, your lender may be willing to refinance the existing loan into a fixed rate mortgage with an expedited process. Giving the lender a call to see about the possibilities is often a good choice. As I mentioned earlier, there may even be a program where, for a small lump sum payment, you can lock in an interest rate for the duration.
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If you can’t refinance, things can get tricky and having your family lawyer help you through the situation is very wise. One obvious option is to sell a home that you may no longer be able to afford. But, with the glut in the housing market, this can be a problem, too, if your home is worth less than what you owe. Some lenders may help you sell “short” if you are really in financial trouble, others won’t. There are those in the finance community that may offer you quick fixes ” debt consolidation loans or second mortgages. These are seldom the best route to follow and need to be part of a comprehensive plan. Again, your family lawyer and accountant are the “go to” professionals to help you.
Currently, there are efforts in Congress and in the White House to try to reduce the hardship the mortgage foreclosure crisis is creating both on the mortgage industry as well as individuals. Your family lawyer and accountant will certainly keep up to date on those developments and can help you negotiate these difficult times.
The information provided in this column is based upon general principles of law and should not be relied upon in any manner. It is not the intent of this column, its author, publisher or the Fence Post to provide legal advice to any person. You should address specific legal questions to your family lawyer. In Wyoming, the State Bar can refer you to competent lawyers in your community by calling (307) 634-7823. In Colorado, call the Metropolitan Lawyer Referral Service at (303) 831-8000. Readers in Nebraska can receive referrals from the State Bar Association by calling 1-800-742-3005.