Exploding Mortgages

Many mortgage loans have been written with hidden traps that spring on the consumer several years later, but what are they and how do you avoid them?
Stephen Dunne, Esq.

Stephen Dunne, Esq.

Philadelphia bankruptcy, credit report, and debt collection abuse attorney

Many mortgage loans have been written with hidden traps that spring on the consumer several years later, but what are they and how do you avoid them?
Stephen Dunne, Esq.

Stephen Dunne, Esq.

Philadelphia bankruptcy, credit report, and debt collection abuse attorney

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In recent years, many mortgage loans have been written with hidden traps that spring on the consumer several years later. Your monthly payment will explode two or three years later into the mortgage, whether or not general interest rates go up. The lender offered you a “teaser” rate that is guaranteed to go up after two or three years, causing your mortgage payments to “explode” at that point. Your mortgage may have given you an option to pick a lower payment for a time, but when the option period ends, a much higher payment is then required.

It is essential that you determine as soon as possible whether your mortgage loan contains this feature. You will have more options and more time to investigate those options if you act promptly. Many of these exploding mortgages were refinancings of existing mortgages or second mortgages for home improvements or similar expenses.

If you took out a mortgage loan within the last five years, you should check what happens to your monthly payments in the future. Ask the servicer or lender. You may be among the millions whose monthly mortgage payments are about to skyrocket. You have options if you act now.

If you do have an “exploding” adjustable rate mortgage loan, immediately explore the following options:

  • Ask your lender to modify your mortgage so that monthly mortgage payments can be lowered. You may be eligible for a mortgage modification under one of the government supported programs, such as the Home Affordable Modification Program, or “HAMP.” In most cases you will need to apply for a HAMP or similar modification by contacting your servicer.
  • Ask your lender to freeze your existing interest rate so that monthly mortgage payments stay at the same amount. It is possible that your lender has a program to eliminate or postpone the interest rate jump, at least for certain qualifying borrowers.
  • Try to refinance with another lender. If you find another lender to refinance your present mortgage, you may have to pay more now than under your present “teaser rate,” but you will save lots of money later on. It is more important to establish a mortgage payment plan you can afford in the long run than save a few dollars now, only to lose your home in a few years.
  • Ask a lawyer to look over your mortgage and the facts that led to your getting into the exploding adjustable rate mortgage. If a loan broker defrauded you or if there are law violations in the loan, these may provide you with viable legal claims to help you recover damages, cancel the loan, or work out a beneficial settlement that lowers your mortgage payments in the future.

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