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I Am Confused And In Trouble With My Option Arm Mortgage. – Kim

Kim

“Dear Steve,

Husband and I take home $6,200 p/m. 1st mortgage $355k changes per libor 6 months, monthly $1300, 2nd mortgage $110k, 15 year fix, $867 p/m to end in 11 years. Home is upside down. value now $270k.

Credit cards approx $45,000 about $760 p/m, car loans $37k, $529 p/m. no retirement/ira and no large assets whatsoever. Husband is 40. I am 37. I don’t know if I should seek credit counseling or file or BK 13 to get some relief.

We live in San Diego. Seriously in trouble and need advice. What should we do? I’ve watch your show, and have much respect for you. I am about begging for financial advice. I have 2 minors, 16 and 3 (which we pay $730 p/m in child care.

Kim”

Dear Kim,

From the description of your mortgage it sounds like you potentially have one of those libor based option arm mortgages that give you some choices about how much you can pay each month. Payment choices range from one that will pay the loan off in 15 years to a payment that won’t even cover the interest. Libor stands for London InterBank Offered Rate. These libor based loans are part of the next wave of mortgages that will reset and payment are projected to increase and cause more foreclosures.

I am not a fan of 15 year mortgages. I prefer to see people in 30 year mortgages and making a payment that will pay off the loan in 15 years. This way, in difficult and unexpected situations you can drop back to the 30 year payment to get some breathing room and then resume the 15 year payment when life gets better again. Otherwise, the option is default and the loss of the home.

Just from the numbers you gave me it looks like you can make ends meet but I’m confident there is more to the story. To get a grip on what you can afford to pay towards debt repayment and/or savings you can use my debt reduction dollar formula that begins on page 81 of my book, “Eliminate Your Debt Like a Pro”, which you can download for free.

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No matter what your situation, I don’t think you can go wrong with setting up an appointment with a local bankruptcy attorney and go in for a review and to learn about what bankruptcy would mean for you if you went that route. You don’t need to go to file, just learn and get the facts.

Before you break into a full fledged panic and rush to make an emotional decision, let’s get all the facts first.

I’m going to give you some homework. Come back and update me in the comments section about what money you have left over each month to use for debt repayment. Also, give me feedback on how the meeting with the bankruptcy attorney went.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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