Mortgage News: Foreclosures up 53% over Last Year... Partly Due to Adjusting Mortgages

Wednesday, September 13, 2006

Foreclosures up 53% over Last Year... Partly Due to Adjusting Mortgages


Cnn released a story titled, "Foreclosures Spike in August" which quotes a 53% increase in national foreclosures with some (not surprisingly) hot spots like California, up 160% since last year. According to the report, Rick Sharga of RealtyTrac's states the rising foreclosures are in part due to adjustable rate mortgages.

They quote a 5/1 Adjustable rate mortgage that would be resetting and the first adjustment would tack on 2% to the interest rate. The article indicated a $200,000 loan would cause a jump of $250 in monthly payments but that does not assume an interest only first mortgage.

Here is the actual numbers making an assumption of a $200,000 originally at 5% that was fully amortized. Original payment would be $1,074, the new payment $1,410. That's a $340 increase (31.657%) of the borrowers "net" income. Pay raise or not, this people are in trouble.

Now here is an even more common scenario ran through our 5/1 adjustable rate mortgage calculator which would be fairly common in California.

$300,000 loan amount originally at 5% "interest-only".

Original mortgage payment: $1,250 a month
New mortgage payment: $2,120

An increase of $870 a month or 69.6% increase. Ouch.

We would like to take a little survey... you can stay anonymous, please indicate the terms of your current loan and what state you are in, so we can get an approximate idea of what types of loans most people have.

For example: $200,0000 30 year fixed rate, texas

Also, if you currently have an interest only loan as indicated in the story, we you aware by how much your mortgage payments could increase?

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