Fixed Mortgage Payments Aren’t Fixed

There have been a lot of articles lately about the subprime lending industry (is anyone else not surprised these sort of shenanigans happened during the last housing boom?) and how a lot of homeowners who stretched to get into a home with an adjustable rate mortgage are now finding themselves being whalloped by higher payments. Personally, I can totally understand why people would get an ARM because while you don’t get “fixed” payments, you do get to move into a home now and you can always refinance.

The Problems

Happy family near new home. Mortgage concept.

Herein lies the problem now, people are being screwed because their lender said they could always refinance after the 3 or 5 year mark, when the loan becomes adjustable, but they can’t because their credit isn’t good enough. While that is a problem, there’s also another one out there that isn’t get as much attention (because of the subprime lending story): those folks who stretched to get into a fixed rate mortgage but are seeing their monthly payments rise because of other factors – like real estate taxes!

Never Believe In Word “Fixed”

When I purchased my home almost two years, the escrow on the mortgage was figured using the existing real estate taxes for the first year. In the second year, the escrow has a shortfall because the real estate taxes had increased because the value of the home increase from whatever it was to the purchase price. That, plus some other escrow items, increased the mortgage payment by a good 30%! Certainly that’s not like some of the other scary stories you hear about how mortgage payments doubled for some homeowners with ARMs, 30% is something that can destroy your finances if you don’t have any buffer built in.

So, for all you folks out there who think fixed means fixed forever, just remember that there are components in your mortgage that will always go up and so you have to be ready to weather those storms as well.