Sub Prime mortgages
People who had “teaser” loans or ARMs (adjustable rate mortgage) with only a 6-month or 1-year fixed interest rate and negative amortization loans started defaulting on their mortgages when these teaser and introductory low rates and negative amortization loans and interest rates became due for renewal.
Note:
The opinions expressed in this post are those of the author,
and do not reflect in any way those of the site owners.
As regards the articles on MORTGAGE, be careful when taking decision
unless you want to become a SLAVE to your debt.
Some folks use negative amortization loans to get into a home they otherwise cannot afford. People think they will have more income in the future and they believe as prices of houses are increasing rapidly, basically, they are speculating, so they won’t have any problem in paying more than what they owe today as prices of homes will increase. Speculating on real estate is risky. And using a negative amortization loan adds more risk and leverage. The biggest disadvantage is if you have lived in a home for a long time and the prices of houses did not go up in your area as much as your house. Then in that case, not only did you not make profits on the sale of your house, but you actually ended up still owing money on the house. If one does not have money, their credit will be screwed.
When choosing a loan structure program for purchasing a new home, often the biggest concern for homeowners is, “How much will my monthly payments be?” The answer to this question is a relatively variable one, depending on the loan program. How much you can afford for your loan payment will determine how much the house costs, and what type of loan structure you will qualify for.
Teaser interest rates: A teaser or introductory interest rate that looks attractive now could cost a lot more later. A teaser rate is a very low starting interest rate or other types of loans, which are applicable for short terms, sometimes for 3 months to a year, and can, reduce housing costs on the early years of home ownership but can be very expensive in the long run.
Initial savings on a teaser rate might be good if you intend to sell or refinance the home, maybe you want to improve your credit score within a few years. If you are going to keep the home for a few years then teaser rates may not be as good as they look. Most of these rates invariably come with the likelihood of much higher rates and payments later on as minimum payments now result in deferred interest that will be added to the amount you owe and also result in higher payments later.
Introductory adjustable rate mortgage (ARM): A traditional confirming ARM may come with an introductory interest rate for a set period of time, perhaps one month or even up to 10 years. The ARM rates are short-lived and they depend on their structure and the volatility of the underlying index to which the interest rates are tied. These rates will fluctuate with the index rates to which they are tied.
ARM is periodically adjusted based on a variety of indexes. Among the most common indexes are the rates of 1-year constant-maturity-treasury (CMT) securities and the cost-of-funds-index (COFI). A few banks use their own cost of funds as an index, rather than using other indexes. This is done to ensure a steady margin for the lender, whose cost of funding will usually be related to the index. Consequently, payments made by the borrower will change overtime with the changing adjustable rates transfer part of the interest rate risk from the lender to the borrower. They can be used where unpredictable interest rates make fixed rate loans difficult to obtain.
“Buy-downs” from your builder: another promotional interest rate. In these kinds of interest rates, if a builder or a private owner wants to sell his property, he will pay the lender some parts of the interests for the first few years. For example, a 3-2-1 buy-down would reduce the interest rate by 3% in the first year, 2% in the second year, and 1% in the third year.
Subprime mortgages: are made to borrowers who do not qualify for a fixed rate mortgage due to their weak or limited credit histories. Subprime mortgages offer low interest teaser rates that reset to higher adjustable mortgage rates.
By Ashok of http://becomerichinfiveyears.blogspot.com
Circular Saw Blades And Jig Saw Blades · Why To Buy A House Instead Of Leasing It · Change Your Thinking: Think SAVING, NOT Spending! · Investments in Real Estate: Case Studies of People – Part 1 · Investing In Real Estate – Invest In Your Own Home · Sanding Paper And Discs For Finishing Sanders, Orbit Sanders, Belt Sanders · Save In 401k – A Small Amount of Money Will Make Millions ·
