Toxic Mortgage

• A toxic mortgage is a type of loan that has the capability to financially harm a homeowner even if the homeowner is in solid financial shape. This is a type of loan that you would normally find available for those who have bad credit or low incomes. With this kind of mortgage, you essentially agree to terms that could potentially be disastrous in the future even though you could have qualified for a more stable mortgage.
  
  

Loan Features

• While not all toxic mortgages have the same exact features, many of them have some of the same features. For example, many toxic mortgages have adjustable interest rates that start out extremely low and then can jump up significantly after a few years. Many other types of toxic mortgages also come with interest-only payments for a certain amount time. By combining these two options, a lender can make your payment very low initially. Then after a certain amount of time, your payment jumps up to a level that you cannot afford.
  
  

Selling Toxic Mortgages

• Toxic mortgages have commonly been sold by unscrupulous mortgage lenders who want to make more money off of a loan. Most of these loans come about because a mortgage lender talks a borrower into them. When this happens, the mortgage broker may leave out key details about the loan that will prevent the homeowner from making an educated decision. This leads the homeowner to choose the mortgage even though it is not in their best interests over the long-term.
  
  

Consequences

• A toxic mortgage could lead to a number of problems for the homeowner in the future. In many cases, the homeowner ends up losing the house to a foreclosure. Some homeowners are able to refinance the toxic mortgage into a more stable, fixed-rate mortgage product. The lender may also be willing to accept a deed in lieu of foreclosure, which involves simply giving the deed to the property back to the lender. Some lenders may also be willing to modify the terms of the mortgage for the benefit of the borrower.