What are my options if my homeloan interest rate shot up?

Question

How tough is it to get a refinance to another interest only or ARM? Here's my predicament - my "interest only" homeloan rate shot up and my bank only gave me 45 days warning (down to 30 now). I don't have equity and my credit score is 618 which is JUST under what banks normally like to lend to (or so I've heard). I have really streched and paid off a credit card so my credit score goes up. I just want to go for another year or so and then try selling and be rid of my condo. I plan on renting for a while and saving up so I can put down 20% (I only put down 5% for this and only paid interest - not wise, I know).

Answer 1

I am a certified mortgage planner and it sounds like you realize where you could have helped yourself in the past and now need a leg up to get through.

Here are some suggestions for you besides contact me (although if you want to - please do).

First you need to know what you can afford right this minute,taking into account two ways to calculate it (the bank way and the true way) First the bank way. take your gross income and divide it by all your secured debt payments, this gives you DTI (it should be 45% or less - if it is more you have to seek alternative financing options). Then calculate the true way, take into account your unsecured bills added in (give yourself at least 10% free money - be realistic about your personal spending habits) and calculate that ratio.

Second step - where did you get that credit score? If you pulled it yourself, your mortgage score that I would pull will be less (almost a guarantee). If your bank pulled it, which bureau did they pull. 618 is not a bad score, it is not fantastic, but be cautious about multiple pulls, that can bring your score down too.

Finally - what will your condo appraise for today, and how does that compare with what you owe. Do you have any idea, if not, get one. A CMP can work with an appraiser to get a value check to find out where you will hit.

And in the end, you have a few choices, figure out what your payment is going to be (keeping in mind that it is likely to adjust every 6 months now until it caps). And determine whether you can afford it and if it makes sense to try and stay there for the year.

Second choice - find a certified mortgage planner who can help you explore the lending options out there other than a traditional bank, there are many. A whole market called Alt-A is open to you and the fixed rate mortgages there are compareable to ARMS right now.

Your last choice is to suck up some pride and go to your bank and let them know your situation. Many banks are doing what is called a modification before the homeowner falls into distress. Believe me, they don't want your property. So many banks are holding foreclosed properties right now because they won't even sell at auctions or sheriff's sales. IF you talk to them now before it become a problem you are demonstrating your responsibility to them and banks like that.

Good luck with this and again, if you have questions, please feel free to ask. As a CMP my goal is to educate and be a resource.

Answer 2

Well, pleading with the bank for mercy on extending your current rate will cause one or more people to fall off their chairs in laughter, so you either pay the higher rate or do your best to refinance. Of course the latter is the sensible thing to do. Do the due diligence and figure out whether it's less expensive for you to pay the current mortgage or get a new one, with its closing costs and other fees. If all else fails, get that 'for sale' sign out there and hope for the best.

Answer 3

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