Debt Free News

Mortgage defaults to rise

December 20, 2006

Some of you debt free news readers out there may have seen this story on CNN’s Headline News today, others may be reading it here for the first time. In fact, it is being reported at many debt free sites. Whatever the case, if you are involved in a sub-prime mortgage, you will want to read this for sure. It is being reported that one in five borrowers who have mortgages that are less than prime rated, will foreclose on their loans in the coming months.

Well over two million homeowners with these types of home loans are already in trouble. These homeowner loan defaults will cost homeowners more than $160 billion. The one in five statistic above stems from borrowers who have loans that originated in the past two years.
 
These predicted statistics have come to light and are being mentioned in the news because a study was created that took a look at the default rates on some six million less than prime mortgages that closed between the years 1998 and 2004.

If you are a debt free news article reader who is wondering what we actually mean by less than prime mortgage, we are referring to mortgages that are created for consumers that have less that great credit histories. These types of mortgages are the ones that have those nasty high rates attached to them. Prime mortgages contain the better rates. When a consumer cannot keep up their mortgage payments, they go into acceleration or foreclosure and they lose their home if they cannot come to terms and pay the debt.

When the real estate market boomed in the recent years and we saw all those condo conversions taking place, many renters or consumers who lacked such perfect credit jumped at the chance to own. Lenders created new loans that were tailored to less than stellar credit clients – known as less than prime. Now that the market has taken a hit and interest rates are climbing – those consumers who do not have locked in rates, are suffering.

Some economists believe that the new prediction regarding the hike in defaulting on mortgages is too high. Others think the new prediction could be unrealistic. Whatever the case, many of our debt free article readers understand that their bad credit history has effected their rates and they are worried about their mortgage rate rising.

Everyone needs to understand that if they do have a non fixed rate mortgage, they need to look into what their mortgage will rise to as soon as possible. This is especially true for those of you who may have taken a 2 year ARM to get qualified or in order to not have a big down payment. If you think about it – those 2 year ARMs are all getting ready to hike up as far as rates go. We mention the 2 year ARM because it was 2 years ago when many unsuspecting first time home owners took out mortgages and accepted these ARM mortgages.

However, if the home cost predictions get better the rates will go down. Mortgage interest rates are rising because home prices are dropping again. As we all know, this can change and many economists believe it will.

Some financial economists say the real estate market will bounce back in 2009, the question is whether or not homeowners can pay their mortgages on time until better financing is available that far into the future.

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