Adjustable rate loan

Here’s my question;

In 2003 I took out a home equity loan on the house. At the time, the adjustable rate was around 4%.

You can see this coming, right? The interest rate is now at 8% and climbing and it’s been a disaster for our budget. What’s the best way to refinance? Has anyone else dealt with this, and if so what did you do?

In 2003 rates were around 5.125% to 5.375%. Why did you opt for the adjustable-rate loan? (Not that it has anything to do with your situation; just curious.)

Moved to IMHO. You can still get factual answers there.

samclem GQ moderator

Call the bank and see if you can re-fi to a fixed rate loan. I don’t know your credit history or your record of payments with the bank, but they should be able to help you.

I decided on the adjustable rate because the rates were reasonable at the time and had been for some time.

My husband and I have both had a sharp decrease in income, our home is worth less than we owe, and we are in debt.

We live in Michigan. The economy sucks, jobs are increasingly hard to find, etc.

Up until the last few years we were in excellent shape. Now we have lower incomes, debt, and even if we did sell the house we wouldn’t get what it was worth 5 years ago.

I’m not a scammer. We work and pay our bills. The interest charges are eating us alive and it’s extremely frustrating to work in order to pay interest, without touching the principal.

With that being said, does anyone know of any mortgage relief initiatives? I know that Bush is working on a plan to provide some relief;

Our once pristine credit history is now damaged because of late payments.

No flaming, please.

I’m a real estate lawyer who is lately dealing with far too many foreclosures. Sadly, I have no sage advice, but my heart does go out to you. Every day, I hear stories of people facing scenarios just like yours. About all I can advise is to stay in touch with your lender. Even if you can’t make the regular payment, talk to them about a payment plan. They might (but, unfortunately, aren’t required) to work out a forebearance plan.

And (I really hope this doesn’t come across as crass), if the worst thing does happen, just know that a foreclosure, and the accompanying bad credit, aren’t the end of the world. Life does go on. You are cetainly not alone.

I assume since your rate is adjustable that you actually have a home equity line of credit (HELOC)? You can actually refinance just your HE loan or HELOC without affecting your original mortgage. I suspect that because of your situation (no equity in your house, declining credit/income, etc) that you might have more difficulty in finding a better rate than your current 8% though. That rate really isn’t terrible if it’s tied to the fed discount rate, as most adj. rate HELOCS are. Plus, the Fed just reduced rates ½%, which might give you mild relief in the months ahead. It doesn’t hurt to call around or shop online to see if someone can give you a better deal. If that doesn’t provide a solution, call your lender and work out a reduced payment plan with them. Most will readily accept interest only payments to keep you current/out of foreclosure. I wouldn’t count on some type of gov’t bailout; only rich investors and (to a lesser extent) the poor usually get any measurable relief in those types of deals.

I had a similar situation last year and was able to reduce my adjustable rate HELOC rate by 2.6 points by refinancing just the HELOC, without paying fees or closing costs. Admittedly, my financial situation was quite different that yours.

Good advice so far; you could also contact a credit counselling service (make sure it’s a non-profit one, not a scamming take all your money and not make payments kind). Can you talk to the lender who gave you the variable interest loan and get them to lock it into an interest rate now? Most of the variable interest stuff here can be locked in at any time.

You have my sympathy on the debt treadmill feeling - we’re on it, too, and it sure does feel like you’re making no headway. The day that we achieve zero debt is the day that you will all hear my shout of triumph from wherever you are. :slight_smile: If I could give young people one piece of advice, it would be “No Debt!!!” Not even student loans - work your way through school, taking longer if necessary, but the money you earn will be YOURS, not the bank’s.

My understanding of the Bush proposal is that it would allow more loans to be covered by government guarantees, and thus would be cheaper. I haven’t read anything to make me think equity loans are covered - however if it passes, you can see if you would be able to refinance everything. What’s your mortgage at? Is that a problem also?

I was also thinking that a credit counsellor might help you with budgeting as well. I don’t know if you’re living expenses have been pared to the bone already; a lot of people think they’re living tight without really tightening their belts at all (not saying this is you, just that when you’re in the situation, outside perspective can really help).