How to Set Up a Step-Rate Mortgage
Step-rate mortgages are being offered by a number of banks to help out those borrowers who are in financial crisis. Step rate mortgages are loans whose interest rate increases over a specified time. These loan-modification programs are structured, so the homeowner pays a reduced interest rate, sometimes as low as 1 percent on her loan to reduce temporarily the total payment on her mortgage. The programs do not typically reduce the principal of the loan balance. Loan-modification programs vary by bank and by individual borrower. Consult your lender for information specific to your circumstance.
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Instructions
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Gather all of your financial records. You will need pay stubs, bank statements and your bills and expenses from the past six months. You will also need your tax returns from the previous two years.
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Call your lender. Most lenders have a dedicated phone number and representatives to handle loan-modification questions. You can find the number on your bank's website.
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Find out if you qualify for a loan-modification program. Some banks will be able to give you an initial indication over the phone. Once it has given you the go-ahead to apply, it will send you the paperwork for the official application.
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Fill out the paperwork carefully. Keep a record of all correspondence with the bank, including the date that you mailed the paperwork and any conversations you have with representatives. Each bank is different in its requirements, so call and ask questions if any part of the application process is unclear.
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Make your payments. Consult with your lender to determine how much you should be paying towards your mortgage while your application is being processed. Some banks will offer you relief from your mortgage while they review your paper work. Make all payments according to their instructions. Missing a payment could jeopardize your ability to get approved for loan modification.
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Review the loan modification agreement carefully. Once you sign the agreement you will be contractually bound. Understand how your payments will step up over time and devise a plan for handling the increased payments.
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Tips & Warnings
Keep in mind that in difficult financial times, a large number of people will be requesting loan modifications from their banks. The process may take two to three months to complete.
