payment shock

Definition

Unexpectedly great jump in mortgage installment amount, such as an increase of 30 percent to 100 percent or more. All discount rate and adjustable rate mortgages have this "built in time bomb" that, in a few months or years, causes the payment explosion. As the grace period comes to its end, the higher interest rate become applicable and the charges not included in the beginning payments now fall due. This problem is compounded by the reluctance of investors to buy mortgage backed securities after the subprime fiasco.

Use payment shock in a sentence

You may find that there is a sudden payment shock and you will just have to deal with it as best as you can.

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After their interest only portion was over the couple received payment shock. They didn't realize how much it would increase.

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If you have an adjustable ARM on your mortgage you may be in for a payment shock when it becomes due, most homeowners did not think about this when obtaining financing.

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