Homeowners struggle to keep up with adjustable rates

[Rose Siding]

For 45 years, Robert and Lorraine Brown have lived in their ranch-style home in Florissant, Mo. One of their four children was even born there. But for the past eight months, the couple have been locked in a sleep-wrecking race to keep up with their rising mortgage bills. They've switched to cheaper phone service, cut back on groceries and sometimes put off ordering medicine.
When they refinanced their home two years ago to pay off some bills, Robert, now 78, was working as a deliveryman. But his employer went out of business last April. Now he and Lorraine, 72, a retired nurse, are both seeking work. The rate on their mortgage has jumped from 7% to 10.5%.

"We were having a hard time meeting bills at the time we refinanced. It seems once you get behind, you do desperate things to catch up, and you never do," says Lorraine, trying to hold back tears. "At the time of the loan, they tell you, 'Well, it may go up, but it's probably going to go down.' You want it to be so, so you believe it."

They feel alone, but they're not. America's five-year real estate boom was fueled partly by a tempting array of cut-rate mortgages that helped millions of Americans qualify for home or refinance loans. To afford soaring home prices, many turned to adjustable-rate and other, riskier loans with low initial payments. The homeownership rate hit a record 70%.

Now, the real estate market is cooling, interest rates are rising and tens of thousands more Americans are starting to have trouble paying their mortgages. Nearly 25% of mortgages — 10 million — carry adjustable interest rates. And most of them went to people with subpar credit ratings who accepted higher interest rates, according to the Mortgage Bankers Association.

http://www.usatoday.com/money/perfi/housing/2006-04-03-arms-cover-usat_x.htm

[sinkingfeeling]

1. Sad...they've had the home for 45 years, but got 'conned' into refinancing

to pay bills. There are alot of folks out there in the same position.

[Wcross]

2. After 45 years it should have been paid for........

They don't have trouble with a mortgage. They failed to plan for their retirement.

[LynzM]

3. ARMs are a scary and tempting thing for many people...

We absolutely refused to get one. Does it mean we pay more in the short-run? Yes. But there's no way we were willing to take the risk.

[Virginia Dare]

4. This will be the straw that breaks the middle class's back..n/t

[cliss]

5. Caveat Emptor.

Refinancer beware. I don't know what their monthly payments are, but if the mortgage jumped to 10.5%, that's a big increase. They probably will not be able to make their payments.

They're going to have to sell the house. At least then, they will be able to avert foreclosure. Once it goes into foreclosure, they will lose all their equity.

I'm sure the lending company is drooling at the thought of taking a house that is free and clear except for the refi.

At 78, it's a little tough to go out and find a job. Sell.

[kiraboo]

6. Refinancing, and adjustable rate?

Sounds like a big mistake to me, especially after retirement when income isn't likely to rise when/if interest rates do.

The sad thing is that some people aren't able to make the right decision when it counts, for any number of reasons. These are the people a just and good society will seek to protect. The U.S. isn't one of those societies.