Santa Ana, CA -- (ReleaseWire) -- 06/27/2007 -- Southern California-based mortgage lender, Gail Rogers, reveals the truth about nightmare mortgages at a new website that features critical information for homeowners who financed their homes with an option adjustable rate mortgage (ARM). In addition to insider secrets, the website offers free mortgage calculators, free reports with tips for homebuyers, including tips on improving credit scores, how to buy a home with little down, and terms to know when shopping for a mortgage.
While Gail’s website features many tips for new home buyers, it is also a useful resource for existing homeowners, especially those with exotic mortgages, or unconventional mortgages designed to make payments affordable on otherwise unaffordable home prices. Exotic mortgages were designed to get people into homes, often with teaser rates that made the monthly payment—in the beginning—affordable. But these low payments are temporary.
In recent years the popular adjustable rate mortgage (ARM) allowed many Americans to purchase homes who might otherwise have been unable to buy. But while the option ARM might have gotten buyers into their homes, it isn’t necessarily going to keep them there. Low payments are short-term due to monthly interest rate changes, and the lower interest rate doesn’t allow homeowners to pay down their mortgage, but instead adds money onto the loan amount. The less homeowners pay now—in the interim—the more interest tacked onto the principle balance.
For example if a home buyer took out a $400,000 option ARM loan 2 years ago, the teaser payment—just to make the mortgage affordable at the moment—might have been $1,458, based on a teaser rate of 1.9%. However, the payment on that same option ARM mortgage should have been $2,865, quite a difference from the “fake” amount the lender allowed the homeowner to pay in order to afford a mortgage. The homeowner who opted for this risky loan program 2 years ago had another, more conservative, choice—a 6%, 30-year fixed rate that had a combined principle and interest payment of $2,398 per month, and that payment would be the same today, which is a significant savings from the ARM rate. In addition, if the homebuyer had chosen the 30-year fixed mortgage, he or she would have paid down the $400,000 loan amount, whereas the adjustable rate mortgage program increased the original loan amount to about $430,000.
This is a perfect example of a negative amortized loan. The true rate on the ARM loan was probably about 7.75%, and because the homeowner opted only to make payments on the teaser rate, 1.9%, the difference kept adding back to the principal balance of the loan. Over the course of 2 years, only making the minimum, teaser, payment, the homeowner added roughly $30,000 to the principal balance, which is also subject to accumulating interest, making the current loan amount $430,000.
To avoid nightmare situations caused by risky mortgage programs like this one, consumers can access free reports at http://www.southerncalmortgagetips.com .
Mortgage expert Gail Rogers specializes in providing information to consumers that allows them to make informed decisions about their mortgage financing options and learn the insider secrets that can save them thousands of dollars over the life of their loan. Gail has worked in the mortgage industry for thirteen years in Southern California and has used her expert knowledge to counsel many local families and individuals regarding their financial situation, helping them get out of debt and on the road to financial freedom.
Gail Rogers is available for interviews and will welcome all your mortgage related questions. Call (949) 459-6888 for a Free No-Obligation Consultation.