Refinancing a Home Mortgage
Posted by admin on Jul 28, 2009
The end of March, consumers were delighted to see the interest rate for the average home mortgage still at historically low levels. The Federal Reserve made a decision to keep rates low and many analysts expect them to stay fairly low for the remainder of 2009. Given the shaky state of the economy and the increase in unemployment, low rates have been the one shining light for those considering buying a new home with a home mortgage and, particularly, for those wishing to refinance. The one hiccup for some borrowers has been the tighter standards lenders now have in place. Borrowers must now have higher credit scores and put down larger down payments to qualify. Because of those requirements, less people who apply for a home mortgage are actually approved. Homeowners looking to refinance are under the same scrutiny. Many lenders are now requiring at least 20 percent equity and a credit score of 700 or higher to qualify. The biggest hurdle for applicants in the areas of the country where values have dropped the most is having enough equity. Part of the new stimulus plan introduced by the Obama administration is designed to help those who keep up with their mortgage payments, but whose home values have dropped so much that they now have little or no equity. But those who owe more than 105 percent of the value of their home will not be eligible for a refinancing under the plan. Those who have at least 5 percent equity in their homes will qualify.
Some consumers think the home mortgage rates will decrease even more, so will wait to refinance until then. They may be right and snag an even lower rate in the future, or wish they would have grabbed the lower rates. As home values are predicted to continue to fall, homeowners who wait take on the risk that the equity in their homes may decrease if the values decline more. Those who are looking into home mortgage refinancing now with the low rates should make sure the benefits outweigh the costs for their particular situation before jumping in. Knowing all the costs of the refinancing is essential. Many people simply look at the savings differential between their interest rate and the new lower rate and forget to consider the actual costs of refinancing. For those who will be able to break even and begin to reap the benefits of the lower monthly payments before they plan to sell their house, refinancing is generally a sound financial decision.
Mortgage Loans in 2009
Posted by admin on Jul 27, 2009
2008 was not a good one for most homeowners in this country. Many who work in the real estate market are hopeful that 2009 will bring an upswing in their battered sector of the economy. They believe prices and interest rates are currently at about the low point and consumers will take the opportunity to purchase new homes and mortgage loans in the first quarter of 2009. Most financial analysts see it differently, however. They believe the recession is only beginning and that home prices will continue to decline in the coming year. Consumers in some markets might take the opportunity to grab the current low rates offered on mortgage loans. But the inventory surplus from foreclosed properties may continue to hold back the real estate market. In addition, there are a slew of adjustable rate mortgage loans that are set to readjust in the coming year. That will likely increase the foreclosure rate and add to the inventory of unsold homes. Although there may be buyers ready to deal in light of the current low interest rates, many of them may not qualify for mortgage loans. Banks now have much more restrictive lending practices, resulting in less mortgage loans being awarded to applicants than there were prior to the credit crisis.
Many people who currently own properties would like to lock in the low rates and refinance their mortgage loans. The past week had the most applicants for mortgage loans in half a decade. Over 75 percent of those were to refinance current mortgages. Unfortunately, a fair number of those who applied were denied. According to a lender in Florida, a very small percentage of those who contacted him in the last couple weeks to refinance have actually been approved. Some homeowners that purchased in areas like South Florida that have experienced a decline in values are finding that they owe more on their mortgage loans than their homes are worth now. The more restrictive lending practices are leaving these mortgage loan holders out in the cold. Lenders are requiring a higher percentage of equity in the home, a high credit score and a low debt to income ratio. This is in stark contrast to the lending standards for mortgage loans of just a few years ago.
A lot of financial analysts warned years ago that lax lending practices would lead to trouble. Those standards often required little or no down payments for mortgage loans and appeared to disregard the credit worthiness of many applicants. The new lending practices may seem harsh, yet they are essential to repairing the credit industry. We will have to wait and see if the new year will offer a renewed confidence in the credit market, and ample encouragement for consumers to take on new mortgage loans to get the ailing real estate market going again.
Home Mortgage Types: Reverse Mortgages
Posted by admin on Jul 18, 2009
Do you have significant equity tied up in your home mortgage? Do you need a new source of income? And are you at least 62 years old? If you answered yes to all three questions, you should give serious thought to a reverse mortgage. In a reverse mortgage, a lender makes reverse home mortgage payments to you out of the equity you have invested in your house. You may choose to get the value of your property in monthly payments or in a lump sum. You are allowed to remain in your house until you move away, enter a retirement community or nursing home, or pass on.
Will a reverse mortgage cancel out any other home mortgage I may have?
No, but the proceeds of the reverse mortgage will pay off the remainder of your home mortgage. In some areas, homeowners are not allowed to have both a regular home mortgage and a reverse mortgage on the same piece of property. If you live in one of those areas, you will be required to put your reverse mortgage payments toward your home mortgage, and will not be able to use the income for other purposes until your mortgage is paid off.
If I take out a reverse mortgage on my house, can I still leave the house to my heirs?
Yes. Your heirs may repay the value of the reverse mortgage, attempt to sell the house to cover the cost of the reverse mortgage, or let the bank or other lender resell the house itself. It is possible for your heirs to cover the cost of the reverse mortgage, effectively taking out a new home mortgage on it. However, taking out a reverse mortgage strongly decreases the likelihood that the property will stay in the family. Consider a reverse mortgage only if passing on your house to your heirs is not important to you.
What happens if the lender finishes making all the loan payments during my lifetime?
If you take the value of the loan as a series of payments, and you receive the last payment (that is, the full value of the house) well before you plan to leave the house, you are not required to give your house to the lender and leave. You may keep the money and continue to live in the house for as long as you need or want to. Staying in the house will not create a debt for you, your heirs, or your estate. In fact, it is not possible for a reverse mortgage to put you into debt. This is one of several points that makes reverse mortgages more attractive than a regular home mortgage.
Home Loan Qualification
Posted by admin on Jul 17, 2009
Prior to accepting an application for a home loan, lenders will qualify you for the mortgage. If you are a first time buyer or have not applied for a home loan in several years, you may be asking exactly what qualification means. Qualification is the process lenders use to decide whether, and how much, to lend to an applicant. You can improve your chances of qualifying for the home loan you need by learning as much as possible about the process.
WHAT DO LENDERS WANT TO SEE?
Lenders look for evidence that you will be likely and able to repay your home loan. A consistent, dependable source of income is important. Have you worked for the same employer for two years or more? If your current employment has been less than two years, a lender will look for other signs of stability, such as years with a previous employer or in the same field. What if you have had a recent change in employment? Can you demonstrate your reasons were responsible and that the employment is stable? Expect that the lender will contact your employer to confirm your history. Steady employment indicates both personal responsibility and a reliable source of income.
You will also need to provide proof of the total household income you want held accountable against the loan, as well as your outstanding debt and monthly expenses. The comparison of your debt to income will be evaluated to determine your ability to meet your existing expenses and your projected home loan payment.
ARE YOU A GOOD RISK?
Before approving you, the lender will evaluate your credit report to determine the likeliness that you will make regular, timely mortgage payments. A history of timely, consistent payments is very important to potential lenders. They also check that you use credit responsibly, without regularly approaching the maximum levels available.
STEPS YOU CAN TAKE BEFORE YOU APPLY
The decision to buy a home is one that takes some time. Try to maintain your time in job for a minimum of two years before applying for home loan qualification. Know what is in your credit reports from the three major credit bureaus. If any information is incorrect, write to the affected credit bureau to request correction or removal of errors. Reduce your level of debt as much as you can before attempting to qualify for a home loan. The more of these steps you take, the greater will be your chances of qualifying for all the money required for your home loan.
Federal Reserve
Posted by admin on Jul 16, 2009
When the Federal Reserve recently announced its intention to lower interest rates from 1.5 percent to an unprecedented low of 1 percent the hope was that the U.S. economy would receive a much needed boost in the form of increased consumer spending and a corresponding confidence in the economy following suit. The Fed has stated that along with other measures, this lowering of interest rates will help improve the current credit climate in the country and spur on a new period of economic growth.
This lowering of interest rates was actually long anticipated by many financial analysts, although most of them were unsure how low the interest rates would go. It is worth noting that several instances of the lowering of federal funds rate already took place during the past year, and in fact, a reduction of a half point was already implemented a few weeks previously. This decrease currently places the interest rate at the same levels as it was in the latter part of 2003 and the beginning of 2004. In contrast, the end of 2006 and the early part of 2007 saw interest rates soar as high as 5.25 percent.
Needless to say, borrowers throughout the United States have received news of the lowering of interest rates with much anticipation. The Fed, however, is not actually responsible for setting the rates that are paid on mortgages, car loans, credit cards or other types of debt. Their actions however directly affect the up and down movement of these interest rates. The rates paid on mortgages for example, are dependent on Fed bank rates, and they are in a particularly advantageous position when the Fed lowers their rates. What all this means is that people that apply for home equity credit, credit cards, and adjustable rate mortgages or ARMs stand to greatly benefit from these recent interest rate reductions.
One disadvantage to these decreases is that the interest rates on savings accounts, checking accounts and certificates of deposit will remain low as well. This is why it is important for consumers considering these accounts to compare the different banks’ rates.
Mortgage Loans Require Borrowers to Exercise Fiscal Responsibility
Posted by admin on Jul 15, 2009
As we have all heard on the daily newscasts over the past several months, the economic recession of 2008 and 2009 has had a negative impact on all segments of the financial industry, including the housing market. Lenders have either frozen or severely tightened credit, including mortgage loans. Housing values have dropped precipitously, in many instances effectively wiping out any equity a homeowner has in his property. However, the Obama Administration’s economic stimulus package has, well, stimulated lenders to offer mortgage loans at reasonable interest rates to responsible borrowers.
One mortgage product that has become more popular since the introduction of the stimulus package is reverse mortgage loans. Allowable loan amounts have increased as associated fees have decreased, making these types of mortgage loans much more attractive to their intended senior citizen demographic. Benefits of reverse mortgage loans include no prepayment penalties, no tax due on the cash advance, and no title transfer to the lending institution. These mortgage loans allow the homeowner to borrow against their home equity without restrictions on use, whether it be to cover medical or living expenses.
Homeowners currently paying off existing mortgage loans have no reason for concern over their loan terms and loan safety in these uncertain economic times. Loan terms and loan security will not change so long as the regular monthly payments are kept current. For those in the market for new mortgage loans, now is an excellent time to take advantage of the low interest rates currently being offered to stimulate consumer spending.
Whichever of the mortgage loans best suits your needs, it is still critical to maintain a level of fiscal responsibility in determining an amount you can reasonably afford. Looking back at how the recent subprime mortgage loans crisis began, borrowers have to be careful not to be entrapped by the same seductions offered by aggressive and unscrupulous lenders. Determine and do not waiver from the highest mortgage payment your budget will allow, no matter how much the loan officer says you qualify for. Only you know what you can comfortably live with as doing otherwise will only lead to financial disaster in the end. The loss of your home and destruction of your credit rating are not worth it.
Mortgage loans provide a great way to dip your toes back into financial waters. But to avoid a repeat of the recent mortgage and housing market crash, it is imperative to keep your head on straight to avoid disaster.