QUESTION: From the current market conditions and sales of similar homes in my area, I estimate the present value of my home to be approximately $250,000. I am paying on a mortgage of $500,000 and my loan is based on an adjustable rate of interest. What are my options if my payments increase and I am unable to make the higher monthly mortgage payments?
ANSWER: Homeowners faced with little or no equity and adjustable-rate mortgages that are resetting to higher interest rates may want to consider the following options:
•Make the payments. If you can afford to do so, why not continue making your payments as you originally agreed to do on the loan you signed? Doing this will maintain and improve your credit rating. The real estate market will eventually improve and home prices will appreciate and increase your equity.
•Renegotiate your loan terms. During this economic downturn, your lender may be open to modifying the terms of your original loan agreement to more affordable payments in an effort to avoid foreclosure. Specific terms and conditions depend on what a borrower successfully negotiates with the lender. For example, some options would include reducing the interest rate, forgoing an upward adjustment of the interest rate, extending the repayment period or reducing a portion of the principal balance owed.
If you have missed payments, adding delinquent payments to the principal balance is an option. Or you may seek a combination of all these listed modification terms.
•Foreclosure. A lender may initiate the foreclosure process when a borrower defaults on a loan, such as by missing a mortgage payment.
In California, most lenders elect to foreclose nonjudicially by conducting trustee's sales. This process requires less time and less expense in costs and legal fees for the lender. For the period from
Sept. 8, 2008, to Jan. 1, 2013, California has a special foreclosure timeline for most loans originated between 2003 and 2007 that are secured by owner-occupied residences.
Before foreclosing on an owner-occupied loan originated between 2003 and 2007, lenders must generally contact the borrower by phone or in person to assess the borrower's financial situation and explore options for avoiding foreclosure.
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. A mortgage loan is a secured loan in which the collateral is property, such as a home.
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