Prime Rate Credit

We all have heard personal stories that are pretty close to home about someone who had their home foreclosed by the bank they borrowed the money from for their monthly mortgage. But why have these stories significantly increased, and why is everyone walking on eggshells when they go to buy a house now, for fear they are “getting in over their head”?

Well, a friend of ours was over last night, and he had an interesting theory of why the rate of home foreclosure has gone up. First of all, what is a foreclosure? Well, a home foreclosure is when you have not made your payments for a designated amount of time to your mortgage lending institution, and they exercise their right to do what’s called foreclose on your home loan.

They legally seize your property and you are basically forced to move out of your home because you could not make your monthly payments. Fair enough, right? The bank has lost money on you, and you are essentially backing out of a contract that you signed (numerous, headache-inducing documents) saying and promising that you are going to repay this loan in good faith.

When you don’t pay, or are unable to pay, the bank has the right to seize your home and property and put it up for sale to try to gain the money back that they have lost by you breaking your financial obligation with them.

And now, back to my friend’s theory. He thinks that one of the primary reasons were these ARM mortgage loans, where the rate is variable, not fixed. When the rates were low, everything was great, the people who had the Adjustable Rate Mortgage were paying lower payments, maybe even lower than what they expected.

But when the interest rates went up, many people’s mortgage payments were going up in the hundreds, monthly and many people just simply could not handle this huge wrench being thrown into their financial situation, and were not able to make the newer astronomical payments thanks to the high interest rates. The mortgage they calculated in their minds as a feasible payment for their monthly budget was suddenly blown out of the water. This is a huge consideration if you’re thinking about gettin an ARM for your mortgage loan.