YOU’RE NOT ALONE IF YOU’RE HAVING TROUBLE PAYING YOUR MORTGAGE
The housing boom led to a record homeownership rate of nearly 70 percent, but some homeowners now face problems making their mortgage payments and can’t refinance their loans. Over the last few years, lenders invented new types of mortgages to help families buy their first homes and refinance
their existing mortgages. Many of these mortgages helped families without cash for a down payment, or with less-thanperfect credit, qualify for loans known as “subprime” loans. Subprime loans have a higher interest rate and higher costs, such as prepayment penalties. A very popular, widely available mortgage product is the hybrid adjustable rate mortgage (ARM). Hybrid ARMs have an initial period with a lower interest rate (“teaser rate”) followed by significant increases over the remainder of the loan. The hefty payment increase is often called “payment shock” because the borrower is surprised by the size of the increase and can’t afford the new payment. If you are having trouble paying your mortgage for any reason, or expect problems, you should work with experts and your lender to find a solution now. If you fall behind and don’t take action, the lender will foreclose on your home. If that happens, you may lose your home and all of the money you have already invested in it. The sooner you act, the better the chances you will avoid foreclosure. The Center for Responsible Lending estimates that 2.2 million American households with subprime mortgages have lost or will lose their homes as monthly payments rise on high-risk mortgages. These families stand to lose as much as $164 billion of equity in their homes.
Here we will help you understand your options and give you tips on how to avoid losing your home—regardless of what kind of mortgage you have.

MORTGAGES WITH “PAYMENT SHOCK”
Mortgages like these can give you a “payment shock”:
• 2/28 and 3/27 Mortgages. A 2/28 or 3/27 adjustable rate mortgage gives the borrower a fixed payment for the initial two- or three-year period before adjusting the mortgage up as often as every six months. After the initial “teaser rate” period, your mortgage payments typically adjust up every six months.

• Interest-Only Mortgages. An interest-only mortgage lets you pay only the interest on the loan for the first 5 or 10 years and nothing to pay off the loan amount (principal). After the interest-only period, the mortgage requires much higher payments covering both interest and principal that must be repaid over the remaining years of the loan.

• Payment Option Adjustable Rate Mortgages. Payment option mortgages let the borrower decide how much to pay each month. You can even pay less than the interest, and add the unpaid interest to the total amount of principal you owe. Or you can pay just the interest or an amount sufficient to pay off the loan in 15 or 30 years. These mortgages can have an especially big payment shock. Be careful if your mortgage has any of the following features:

    • A “teaser rate” or “no interest” period that expires and leads to a big jump in your monthly payment.
    • An option to pay less than the full interest due in any given month. Taking that option makes the             amount you owe go up instead of down, since the interest you don’t pay is added to your loan             balance.
    • An adjustable interest rate with very high or no limits on the amount your payment can go up.
    • A payment that doesn’t include an amount for paying property taxes and homeowners insurance.             This means you may be hit with big bills you didn’t expect.

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