Florida Mortgage Advice: Refinance, Negotiate With Lender to Avoid Trouble Later

In the boom years, home buyers bought their Florida dream - and with clever home loans that kept early payments low, it was a bigger dream than ever.

But some folks might have missed the oh-so-common catch: low payments now mean high Florida mortgage payments later.

Now, those adjustable-rate mortgages (ARMs) that took off at the turn of the century are set to adjust, and if owners aren’t careful, their dream will end with the housing boom’s demise.

Homeowners facing sharply adjusting loan payments aren’t alone.

Last week, about a fifth of mortgages written nationally were adjustable rate, according to the Mortgage Bankers Association.

Even that’s a big fall from past highs. According to a Freddie Mac survey, in 2004 about 33 percent of loans made were adjustable.

Hank Oltmanns of A Broker’s Choice Realty, and president of the Northeast Florida Association of Realtors, says so far, most of his past customers have been able to find ways out of ARMs that stretched budgets thin, but he expects that won’t be the case for long.

“It’s going to happen. This market is going to get people who are going to be at that point and not be able to get a Florida mortgage refinance because the equity isn’t there or another reason,” he says.

Buyers taking an ARM were oft misled by their rosy views of the future. In 2004, the home market was booming. Even if rates rose, they thought they could always sell for a gain.

Some owners thought they’d move out of town in a few years or would get a raise to cover a payment increase.

Others thought lax lender policies would last, and they could always apply for Florida mortgage refinancing if they fell behind.

But now, industry watchers like First American Corp. say that 1.1 million owners will default on payments in the wake of the reset of more than $1 trillion worth of ARMs in the next 12 months.

Patrice Yamato, president of the Florida Association of Mortgage Brokers, says that the next few months will most likely bring a dose of reality to many owners.

The bad credit Florida mortgage market in particular, in which buyers with poor credit took loans with high rates, will be rocked by adjustments.

Even if you don’t think you’ll miss a payment but feel you spend too much on the house, getting out of an ARM isn’t bad. Just know your options.

To begin with a worst case scenario: Talk to your Florida mortgage lender before you miss a payment. Your lender makes money off of interest and loses thousands of dollars when they have to take a home.

So not only is it in your best interest to work it out, you’ll be shocked at how far they’ll bend to keep you current.

A Florida mortgage lender can give a short break on payments while you deal with a rare setback like a health problem or extend grace periods.

If your problem runs deep but you have equity in your home, you could be able to refinance to a fixed rate. You’ll still pay a bundle, but at least you won’t have to fear a hike next year.

“A house to a lender is a non-performing asset, a liability,” says Larry Williams, financial strategist and mortgage planner with Stockton Turner & Co.

“The sooner they hear from those folks, the better. Miss a payment, and your options are restricted.”

Try a different path: Florida mortgage refinancing

If you don’t think you’ll have to skip a payment now but want to avoid a future hike, you might take a look at refinancing into a fixed-rate loan, says Charles Boyett, a mortgage consultant for Watson Mortgage Corp.

If you have equity built up, your current lender or a third-party Florida mortgage lender can put you in one at the current rate, which right now is hovering between 6 percent and 6.25 percent.

Loan refinancing costs can be rolled back into the loan if you have equity built up. Otherwise expect to pay a few thousand dollars out of pocket, depending on how big the new loan is.

Start thinking about a Florida refinance before the first adjustment comes so you can shop for the best rates and terms.

“The ideal situation is to know the product you’re in and your options and to put the gears in motion a year before the adjustment,” Boyett says.

If you find you can make payments but that your lifestyle has become hard to bear, getting a new ARM is a choice, though one with risk.

You can’t see the future, but rates could be even higher when the new loan resets in three to five years. In most cases, you’ll have to give up equity to get a new ARM too. But in a unique case, like a firm conviction that you’ll move before the mortgage adjusts, a new ARM isn’t a bad idea.

You can do that in more than one way.

The lender you have now wants to keep your business and might be able to save you money on costs to get the new loan.

Of course, those other home loan lenders want to steal your business and could offer mortgage rates that make your current lender turn pale.

Note that the gap between rates for a 30-year fixed loan and most ARMs is very narrow and doublecheck your math to make sure an ARM makes sense.

Finally, if you just can’t keep up Florida mortgage costs and don’t have the equity to refinance, sell before you enter default.

A foreclosure wrecks your credit and could make it difficult for you to even rent a home. If you wait until you miss a payment, not only will a lender come knocking, but hundreds of real estate watchers will know you’re under duress.

What’s more, if you have more time to keep the home on the market and can wait for a high offer, you could make cash on the deal.

Sunk home values could mean you can’t sell for the size of your loan. But talk to your lender. They might even be willing to accept a short sale for less than the loan’s worth if you let them know what you’re doing.

REMEMBER: The lender really doesn’t want your home.

SOURCE: Florida Times-Union