Adjustable Rate Loan Resets, Skyrocketing Mortgage Payments for Homeowners

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RISMEDIA, Feb. 20, 2007-Many households that took advantage of "teaser rate" loans-types of adjustable rate mortgages that hold down payments for an initial period, are facing resets of their interest rates that can cause monthly payments to balloon upward of 10% to 50% as reported recently by realestatejournal.com. A $1 million mortgage taken out 30 months ago that started at $2,528 per month, could jump to just under $7,000 per month.

According to the Mortgage Bankers Association, there are about $1.1 trillion to $1.5 trillion in ARMs that will face rate increases this year.

Two years ago, luxury home owners were locking in rates as low as 1 percent in the early stages of their Adjustable Rate Mortgage (ARM). These mortgage payments could double once the rate is adjusted to current market conditions. And that spells tragic news for homeowners. According to www.realestatejournal.com, a recent study by First American Real Estate Solutions, a unit of title insurer First American Corp., projects that one in eight households with adjustable-rate mortgages that originated in 2004 and 2005 will default on those loans.

According to SMR Financial, an Orange County mortgage firm that specializes in adjustable rate mortgages and placing consumers in home loans from $1 million and up, adjustments will mean many borrowers will have trouble meeting the higher payments and may be forced to sell their homes, or worse, lose them to foreclosures. The firm cites statistics from www.marketwatch.com indicating foreclosures jumped by 25% in the month of January 2007.

Many types of adjustable rate mortgages (ARM's) or Pay Option ARM's carry heavy prepayment penalties that may make it difficult to refinance in the first few years of the loan. Some of these loans carried caps on the amount of interest that could be deferred, causing the payments to sometimes double in just over two years.

"Consumers are in a real bind, especially in California and Florida," said Sean Reynolds, president of SMR Financial, which works to cut traditional monthly mortgages by approximately 50%. "With California foreclosures up 160 percent since last year, and www.marketwatch.com reporting $2 trillion coming up for adjustment this year alone, the demand for refinancing adjustable rate mortgages will be unprecedented."

Fortunately, SMR financial has been specializing in refinancing solutions for over 18 years, and has worked with a broad range of clients-from professional athletes, CEO's and entertainment industry professionals-to match their needs to the right program. One alternative many of SMR's clients are seeking is negative amortization loans. Funded properly, this form of financing is a viable alternative for home buyers that need to minimize their monthly payments while shedding themselves of the thousands they will be paying through a mortgage reset.

There are certain tax advantages to adjustable rate mortgages with negative amortization as well, adds Reynolds, "with a negative amortization loan, not only are the payments reduced significantly, but since the entire payment being made is interest, it can all be deducted on federal tax returns. For many homeowners faced with a reset of thousands of dollars a month in payments, this form of financing represents a solid option-and sometimes the only option-to avoid disaster and get their mortgage payments back to a reasonable level."

For additional information on refinancing solutions, contact Sean Reynolds at 888.767.0195.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

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