Bad Credit? - Repair it here yourself!

There're many reasons you may want help for bad credit. We're here to help you understand what affects credit, what makes credit bad, how and what entities define your credit, guide you through the credit definitions, financial concepts, common misconceptions and provide you with information and tools that will help to solve your credit problems. Get help for bad credit now! To achieve this, we provide you with Free Access to a wealth of credit related content, forms, tools and calculators. We show you how to improve your bad credit step by step, reestablish your ability to borrow monies, how and where obtain loans, credit cards, mortgages and other financing. Repair Credit now!

Option ARM as debt consolidation mortgage

Tue May 9, 2006 10:05AM | By Tony

See more in Debt Relief | Permalink | Email |

Debt consolidation mortgage has become main business for the mortgage industry. Higher interest rates, real estate market over saturation and stiff competition made mortgage professionals seek money elsewhere. So they became the Good Samaritans promising to get you out of debt by consolidating your unsecured high interest credit card debt into one simple tax deductible low interest mortgage payment with interest rates as low as 1% or even less. They sell you something like - Take control of your finances with the payment flexibility you need to suit your lifestyle. A smart home loan should meet your needs, on your terms. For someone with bad credit, it sounds just right. What they basically sell is the cash-out refinance - debt consolidation mortgage based on Option ARM, or Adjustable Rate Mortgage. What they often don't say is that with so much flexibility, you can lose control in a hurry and get yourself into more debt and foreclosure. Option ARM has its rightful place among mortgage products, and it can sometimes be used as debt consolidation mortgage. But just like you don't jump off the cliff without making sure the water is deep enough, you don't use Option ARM without first understanding it fully.
With fixed rate mortgages, you pay the same amount every month for the term of the loan, say 15 or 30 years, regardless of interest rates rising or falling. With adjustable rate mortgages you pay the same amount every month for the fixed period of the term, say 3 years for 3/1 ARM, 5 years for 5/1 ARM, and only afterwards, your payment will move up or down typically once a year, according to the interest rates which depend on the market conditions.
Option ARM mainly differs in two ways. First, your payments are recalculated monthly, except during brief introductory period where you have "teaser" or "bait" rate at around 1 - 2% that you hear in commercials for debt consolidation mortgages. As interest rates change, so will your monthly payments. Second, you have 4 payment options each month, except that teaser introductory period where you have only 2. We will review those options later. The bottom line so far is you are sold on a teaser rate that will expire in 1 or 3 months, without understanding fully what's coming to you. Option ARM as a debt consolidation mortgage will be continued.