Preventing a Personal Mortgage Meltdown

By Karen Lawson Columnist

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It's easy to get caught up in the enthusiasm of buying a new home. You found a mortgage with a low initial interest rate. Your mortgage lender has just notified you that your house payment will soon increase by a few hundred dollars. Ouch! What can you do?


Options Include Refinancing and Modification

If you've owned your home for a couple of years, and have maintained good credit standing, you may qualify for refinancing your mortgage. Reading and understanding the terms and conditions of your mortgage loan is important, as your mortgage may contain a prepayment clause. This means that you cannot pay off your mortgage loan prior to a certain date without paying a penalty. If your mortgage has a prepayment penalty, you'll want to compare the cost of the penalty and refinancing to the cost of increasing payments.

If you are having financial problems, and don't see how you can make higher mortgage payments, please call your mortgage company immediately! You will be asked to document your financial hardship, and supply proof of your income, financial obligations, and hardship. Recent declines in property value in some areas are giving lenders additional incentive to modify ARM loans. Lenders lose money on foreclosures, and stand to lose more on homes worth less than their mortgage amounts.

How Can a Mortgage Modification Help?

Your lender can change the terms of your mortgage to provide lower payments and prevent future increases in your principal and interest payment (P & I). Your lender may reduce and/or fix your interest rate, and add the balance of past due payments to your mortgage balance and extend the term of your loan. Don't wait to contact your lender. Waiting until your lender starts foreclosure will cost more, and may reduce the benefits of modifying your mortgage terms.


About the Author
Karen Lawson has more than fifteen years of experience in mortgage banking, and now works as a freelance writer. She holds BA and MA degrees in English from the University of Nevada, Reno.

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