Mortgage’s nightmare scenario

Some of you, as homeowners, may see ballooning of your mortgage payment by 20-30 %. This is indeed a bad condition and you would not like it at all. Starting next few months, you may have to pay a higher sum of money than what you were paying earlier as mortgage repayment.

Many of the homeowners in different areas are unable to pay the increased mortgage and defaulted. As a result their homes bear a “For Sale” sign as a result of foreclosure procedures.

In the next few months, the adjustable-rate mortgages, what the homeowners are enjoying now, will reset. The new interest rate will be higher as per the agreements they have with the lenders. So increased interest rate means more money to be paid monthly, which may be a mammoth task for many of the homeowners and the chances of them defaulting is high. The mortgage default rate is increasing and it is having its effect on the financial institutions and economy as a whole.

According to some of the homeowners and financial experts, this may be biggest downturn after the Depression. And this situation may have its toll on the future corrupting the future lending attitudes.

Right now there are 2 millions homeowners are going through this. Together, they have $600 billion sub prime adjustable-rate-mortgage (ARM) loans. These loans are to have a higher interest rate within the next eight months.

The impact will be on the prices of homes. Home prices may even plunge by 40% in selected areas like Nevada, California, Florida and others. So the situation may be grave and so needs help from the state.