A mortgage is a financial note that someone signs committing to paying the entire balance plus principal and interest off over a period of time. Most mortgages are set up to be repaid in 30 years although other terms can be arranged per the lender such as a 15 year or 10 year note. There are several different factors that can lead to mortgage stress. Changes in lifestyle such as a divorce or a loss of job that affects income can be a contributing factor toward paying the mortgage on time and ultimately paying the mortgage off.
Obtaining a Mortgage
There are several stress factors related to obtaining a mortgage. One reason could be lack of funds for a down payment. Most banks and financial institutions require between 10% and 20% cash down before lending the remaining amount to the potential homeowner. This can be an issue for many people on a fixed income. For first-time home buyers, they may wish to seek out special government programs that will help with down payment assistance or closing costs. Another stress factor related to obtaining a mortgage is credit. A credit score must be above 650 in order for most major lenders to even consider writing up a loan. A lower credit score of 650 may bring about a higher interest rate than someone who has a higher score in the high 800 range--therefore producing a higher payment.
Refinancing an Existing Mortgage
There can be mortgage stress involved when it comes to refinancing an existing mortgage on a home or property. There are several factors that lead to this, the homeowner must be in good credit standing with the bank, have a satisfactory credit score of 650 or above, be current on their mortgage payments and the house must be in good condition. If all of these conditions cannot be met, it can be very difficult to refinance at a lower rate to consolidate debt or lower monthly mortgage payment.
Adjustable Rate Mortgage
Many mortgage companies and banks offer an adjustable rate mortgage as a welcoming incentive for an initial lower payment for homeowners. An adjustable rate mortgage or ARM, offers a fluctuating interest rate depending on the current interest rate at the time.The interest rate plays an important factor in what the monthly payments are going to be. If the rate increases, the payment will go up each month and in some cases make it unaffordable to continue living in the home. At this point a great deal of stress is placed on the homeowners as they try to make the monthly payments and keep up with other bills.
Escrow Accounts
In some cases escrow accounts can cause a great deal of mortgage stress. An escrow account is a special account that is set aside to pay other mortgage related obligations on a monthly or yearly basis. Examples of bills that may included in an escrow account are homeowners insurance, taxes, sewer and water bills as well as any tax liens or levies that have been placed on the home. At the end of each fiscal year the mortgage company analyzes how much was spent or dispersed to outside companies. If there was either a shortage or a surplus from the prior year, they will determine how much more they may need to apply it to the monthly mortgage note to make up for the shortage. This can cause the monthly mortgage payment to increase.
Delinquencies and Foreclosure
An unexpected increase in an escrow account or having an ARM that continues to rise monthly can lead to very high monthly payments that can be out of someone's budget. If someone continues to struggle to make their payments or stops making payments, this can quickly lead to a delinquency in the repayment of the mortgage. Any payment that is more than two months behind is considered being in default with most mortgage companies. If the payments cannot be caught up with and adequate payment arrangements cannot be made, the foreclosure process may begin. Foreclosure occurs when the payments stop being made to the mortgage company and the full amount of the mortgage becomes due and payable immediately.
