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  Fixing Existing Option ARM loan problems. Many Americans simply don't know how the loan works, and if they continually make the minimum payment every month and if the value of their home goes down, they can end up owing more than the house is worth. What's worse is that lenders are tightenting their underwriting standards so if you are in this situation, you may have a very difficult time getting a new loan and end up stuck with a payment that is double or triple than what you are used to paying. This can cause many borrowers to lose their home to foreclosure. There are a few things you can do to stay clear of Option ARM loan problems. 1. Modify your loan payment. Lenders are seeing delinquencies in the option arm loans once the minimum payment disappears. The last thing a lender wants is a balance increasing on a loan (deferred interest) combined with an asset (home) that is declining in value. A modification is an option that should be explored in order to make your payment more affordable. Click here for more information on loan modifications. 2. If you have a prepayment penalty on your existing loan, try to keep the loan until the penalty expires. Panic on watching the balance going up on your loan causes many borrowers to refinance prematurely giving up thousands of dollars in equity to get out of the loan. On a $400,000 loan, the prepayment penalty could be as much as $18,000. Plus you have to pay a new set of fees for the new loan, so you could be losing out on close to $25-30k in equity. Don't panic. Keep the loan you have, just stop making the minimum payment. If you can't afford it, call the lender and try to make arrangements before falling delinquent on the mortgage payment. Make sure no adverse credit rating is given in lieu of the bank making new payment arrangements. 3. Interchange payments. Make the interest only one month, and the next month make the minimum payment. The minimum payment should only be made if you are in a cash crunch or if you are investing large amounts of money and yielding a return higher than the rate you are paying on the interest only payment. In a declining value real estate market, you can get burned if you continually make the minimum payment. For several years borrowers homes in Southern California made the minimum payment, and their mortgage balance went up 15% over 3 years, however their home values went up 50-75%! No so any longer. The balance increase by making the minimum payment is no going up at a rate higher than equity appreciation. Be very careful. 4. You must not be afraid of contacting your lender if you are having problems making the mortgage payment. They do not want to foreclose on your home. They make much more money in interest by you staying in the property than foreclosing. Many many Americans lose their home to foreclosure without even calling their lender! Lenders are starting to put plans in place for individuals who are having problems making their payments. Don't wait, call! 5. I mentioned above, to not panic and go out and try to refinance right away. A refinance, however, may at times be the best option. Since your minimum payment disappears, your new mortgage payments will undoubtedly go up, but they will stablize assuming you select a fixed payment period. I recommend a minimum fixed payment period of at least 5 years. Assuming you have enough equity, good credit, and in some cases assets, you can solve your Option ARM loan problem by getting into a new loan where the balance doesn't increase at such a rapid pace, or at all. 6. Sell the property. If you can't qualify for a new monthly payment that are comfortable with, sell. Don't wait until you fall behind payments to list the property. Check with your lender to see when your recast point will be, assuming you are making the minimum monthly payment every month. This way you know when it's coming and it won't be a surprise. If your lender can't tell you when the recast point is, call me, I can figure it for you.
Hopefully you know exactly how an Option ARM works. If not, give me a call and I can help you. I can also give you an easy to read side by side comparision of 4 different loans you can choose from if you choose to refinance. I compare them to your existing loan which will help you see the long and short term benefits of each loan which helps you make an informed educated decision on what is best for you. Call me if you have any questions or click here to apply on-line today! Kevin Walton Cell: 805-276-1942  Catalyst Lending Inc. - 226 Sandberg St - Thousand Oaks, CA 91360 Office Phone: (805) 276-1942 Fax: 800-506-0632 Cell Phone: 805-276-1942 Catalyst Lending Inc.
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