When Exotic Mortgages Become Credit Nightmares

Posted by: Desiree B. | Mar 14,2008

Exotic mortgages have risen in popularity in recent years- and also come under fire. An exotic mortgage includes home loans like short-term adjustable rate mortgages (ARMs), negative amortization loans and interest-only loans. All of these loans can be great options depending upon the individual homeowner’s situation. However, in recent years exotic mortgages have become credit nightmares for many borrowers.

 

How the Bottom Dropped Out of Exotic Mortgage Loans

 

Exotic mortgage loans started becoming a problem for homeowners when interest rates were adjusted on the adjustable rate mortgages. In addition, interest-only loans at some point start to include principal. And negative amortization home loans will also have additional money due at some point during the life of the loan. In an ideal world, this doesn’t present a problem. In our world, the economic downswing resulted in the downfall of exotic mortgages, as homeowners simply couldn’t afford to pay when the additional money for their home loans was due. This in part was the cause of the many home foreclosures that we hear about daily on the news.

 

Exotic mortgages don’t have to be a credit nightmare. If money is coming due on an ARM, interest-only loan or negative amortization loan, the loan can be refinanced into a fixed rate mortgage or traditional homeowners loan to help save money. Compare quotes for refinanced homeowners loans and mortgages online to decide if it’s the right move for you.

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