Adjustable mortgage rates are a common lending tool in the real estate industry. For some homeowners, however, the perfect solution to funding their dream home may become an untamable beast down the road. Facing escalating obligations they are unable to meet, borrowers may panic and stop making payments and simply sit, waiting for the foreclosure process to claim another victim. However, there are other options. There are 2 different alternatives whereby you can lower your payments, negotiate for a lower interest loan and lock the loan in at the new lower rate, or freeze it for 5 to 10 years.
Collect your original loan paperwork and determine exactly what type of financing you have and your current interest rate.
Calculate the amount of money paid, the amount still owed and any delinquent payments and late fees. This will give you an overall picture of the outstanding balance.
Contact your lender and explain your situation. Ask the lender to roll any outstanding payments back into the amount of the loan. This will make your loan current.
Request a reduction in your interest rate. If necessary, point out the number of homes for sale in your area and the unlikely possibility of the bank being able to sell your property any time soon. Aim for a rate of 3 to 5 per cent.
Sign a new contract to lock in and freeze the loan with the new lower rate and reduced monthly payments. Ensure they have guaranteed your interest rate for at least 5 years.
Contact an attorney or obtain the services of a legal aid adviser.
Ask the legal representative to contact the bank and challenge the lender. They will need to factor in your finances and overall capacity to pay off the loan. They will also check for any contraventions on the part of the bank or its representatives or for any falsifications or misrepresentations made by the lenders. Then they will also need to determine whether the property in question has any remaining equity, and if so, how much.
Wait while the lender is being challenged. While the paperwork involved in challenging a lender is being obtained and processed, the homeowner is not obliged to make any payments. By law, while the challenge is under review the lender cannot ask for payments, charge late fees or make a negative comment on credit report.
Save your money. The process takes anywhere from 4 to 24 months, giving homeowners a chance to catch their financial breath.
Decide what you're going to do next. The outcome of the challenge will more than likely end up with a reduction in your mortgage payments to something more affordable as this is in the best interest of the bank. However, this may be the perfect time to pull up stakes and move on.
If you are in danger of losing your home and can no longer afford to make your payments, contact the Federal Housing Administration for assistance (see link in Resources). Remember that the bank would rather take lower payments for an extended length of time than take your home.