Steps
- Know who is your lender, whether private or public. Sometimes your lender continues to be your lender, till you repay him completely. More commonly, your lender might sell your loan to another lender, sometime after you have bought your home. It?s important for you to know who exactly the real owner is of your mortgage is. This becomes vital to stop foreclosure in the event that you stop paying your mortgage payments. And you will find the answer in your mortgage statements. There, you will find the name, telephone number, address and web address of the current holder of your mortgage. In case you are not able to pay your mortgage call immediately.
- Know whether your loan is governmentally insured (check the original loan documents to know if your loan is VA loan, Fannie Mae, FHA, or Freddie Mac). If you have a problem with your mortgage payments, and your loan is government insured, you may be pleased to know that your lender is obliged to help you avoid foreclosure. A copy of loan document should always be kept handy. If you have lost your copy, ask your lender to provide you with another copy.
- Understand what type of loan you have, whether Fixed-rate loan or (ARM) adjustable-rate mortgage? Your loan type spells out how much money you will owe, and at what rate you are to pay. And in a situation of foreclosure, your loan type decides your available options. In case of a fixed-rate mortgage, the term of repayment may be either 15 years or 30 years. In case of an adjustable rate mortgage (ARM), you normally have 30 years to pay off the loan. But if the rate goes up during that time, you may find your monthly payments skyrocketing.
- Understand what type of ARM you have if you have an adjustable rate mortgage. Knowing the details and nuances of your loan will empower you to act rationally in future in the event if you ever face home foreclosure. It?s vital to know if you have a fully adjustable ARM, option ARM or hybrid ARM. Now you are starting to see why you need an attorney on your side, to help explain all of this to you. Do not take the word of the lender. Know what is really in the writing in your loan documents. The fully adjustable ARM gets adjusted every single month of the loan, while the hybrid ARMs may have fixed interest rates and amount for the first year of your loan. Thereafter, the rates and amount is adjusted. The option ARM allows you to choose from several payment options in each month.
- Understand the basis of adjustment in your ARM loan. ARMs get adjusted according to a particular financial index that has been listed on your loan documents. One of the most common indexes of ARMs are the London Interbank Offered Rate (LIBOR). The rates float and your mortgage may be tied to this rate, which may be set in a country you do not even live in. For a ?fully indexed? rate, you need to pay the specific index rate plus a specific profit margin (around 1-2% in most of the case).So if your index is under LIBOR, and your specific margin is 2%, then you can calculate your fully indexed ARM (on any particular date), by looking at sites like Bankrate.com and calculating further. ARMs usually have caps, so you should also be aware of your adjustment caps.
- Plan for death, divorce and disability, which are the three most common threats that can disturb your regular mortgage payments (and force you into home foreclosure). It is important for you to discuss with your lender how the mortgage payments will get worked out in the event of a ?natural calamity?. It may be wise to get disability insurance, unless your income comes from investments, in which case disability insurance will be of no use to you if you become disabled. Similarly, you may need life insurance, but only if you have dependents who won't be able to pay their own bills when you die.
Sources and Citations
- http://www.mortgagebuyerbasics.com/avoid-foreclosure
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