mortgage reset

What is a Mortgage Reset?

Looming increases to monthly mortgage payments have caused panic in millions of borrowers during the housing bust.

A mortgage reset is the interest rate change on a home loan. Many mortgages will have mortgage resets on specified dates. More often than not this term is used to describe the rate change from the low teaser rate to a considerably higher interest rate on an adjustable rate mortgage or other exotic home loan products.

This term can also refer to balloon mortgage and interest only mortgage payment changes. For example an interest only mortgage will have a brief period typically one to five years where the borrower pays a low payment that only covers interest until the mortgage reset date when a principal payment is added to the monthly payment which obviously increases the amount.

The result of these new higher payments often take homeowners by surprise and have been a major contributor to the mortgage crisis that started in 2008. Borrowers often were aware of the looming increase but thought they would be able to refinance into a new loan. However the mortgage markets froze up and the result was millions of US foreclosures and the financial terror that we all remember all to well.

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