Losing home in a foreclosure process is a miserable thing. And the reason behind foreclosure is not always unfortunate financial conditions; many a times home foreclosure occurs simply because the homeowners do not read the mortgage documents carefully, before signing on the dotted lines. A clear understanding of your mortgage is vital to save the foreclosure proceedings. So, if you want to be a smart homeowner, asses these questions below, for every mortgage that you have –

Sometime your lender continues to be your lender, till you repay him completely. In other times, your lender might “sell” your loan to another lender, sometime after you have bought your home. It’s important for you to know who exactly your real owner is. This becomes vital to stop foreclosure.  

And you will find the answer in your mortgage statements. There, you will find the name, telephone number, address and web address of your lender, in that particular time. In case you are not able to pay your mortgage or get stuck up in the foreclosure process , call them at the earliest. It’s also important for you to know if your loan is governmentally insured (check at the original loan documents to know if your loan is VA loan, Fannie Mae, FHA, or Freddie Mac). If you have a problem with your mortgage payments, and your loan is government insured, then you must also know that your lender is obliged to help you avoid foreclosure . A copy of loan document should always be kept handy. If you have lost your copy, ask your lender to provide you with another copy ASAP.

Your loan type decides how much time you have to repay it. And in a situation of foreclosure, your loan type decides your available options. In case of a fixed-rate mortgage, the term of repayment is either 15 years or 30 years. In case of an adjustable rate mortgage (ARM), you normally have 30 years to pay off if you do not have a balloon payment in 10 years.

Knowing the details and nuances of your loan will empower you to act rationally in future (specially if you ever face home foreclosure). It’s vital to know if you have a fully adjustable ARM, option ARM or hybrid ARM? The fully adjustable ARM gets adjusted every single month of the loan, while the hybrid ARMs have fixed interest rates and amount for the 1st year of your loan. Thereafter, the rates and amount is adjusted. The option ARM allows you to choose from several payment options in each month.

ARMs get adjusted according to a particular financial index that has been listed on your loan documents. Some of the most common indexes of ARMs are the London Interbank Offered Rate (LIBOR) and Prime. On any particular day, these indexes have a definite rate. Your mortgage payments interest rate will be indexed according to these rates. For a “fully indexed” rate, you need to pay the specific index rate plus a specific profit margin (around 1-2% in most of the case).

So if your index is under LIBOR, and your specific margin is 2%, then you can calculate your fully indexed ARM (on any particular date), by looking at sites like Bankrate.com and calculating further. ARMs usually have caps, so you should also be aware of your adjustment caps.

Death, divorce and disability are the 3 most major/ common threat that can disturb your regular mortgage payments (and force you into home foreclosure). It is important for you to discuss with your lender how the mortgage payments will get worked out in the event of a ‘natural calamity’. It is always wise to get a life and disability insurance.

                          So, if you haven’t checked your mortgage papers properly as yet, do it now. In case you get stumped, contact your lender ASAP. Always remember, financial help to stop foreclosure should never be your first option.

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