Mortgage Loans in a Credit Crunch
Posted by admin on Oct 27, 2009
Because of the credit crunch, the number of applications for new mortgage loans has dropped, and lenders are wary of approving new loans. Many people, both homeowners who want to refinance and new borrowers who want to buy their first house, think credit is so tight that there is no point to refinancing or to applying for a new mortgage loan. However, they may be missing out on a great opportunity. Now may be an excellent time to refinance or apply for a new mortgage.
Why is that? Because the Fed has attempted to stimulate economic growth with a series of rate cuts, leading lenders of mortgage loans to lower their interest rates as well. That can be excellent news for you, leading to much lower monthly payments and a lower overall cost for mortgage loans. If interest rates are now at least two percent lower than they were when you got your loan, now is the time to refinance.
But aren’t banks refusing to approve new mortgage loans? The answer is both yes and no. The mortgage applicant’s credit rating is the deciding factor. Banks are more wary than they have been about offering loans to borrowers with a poor credit rating, and they are using more stringent guidelines for deciding what constitutes a poor rating, but they are eager to draw in new lenders with good credit ratings. If your credit is good, then by all means, apply right away.
If your credit rating is slightly below the zone considered good, then there are a few simple steps you can take to raise it over the next six months. Pay all your bills on time scrupulously, putting them on automatic withdrawal if you can. The ratio of credit you have used to total credit you have available is important, so pay off as much as possible of your current loans and credit card balances. Ignore old advice to close down unused credit card accounts; leaving the accounts open increases the amount of credit available to you, improving your ratio of available credit to used credit. Be especially wary of closing very old accounts, since doing so could shorten your credit history, which you want to be as long as possible. If you take these steps, pay on time for the next half year, and do not take on any new debts (credit card, car loan, etc.), then over the next several months you should see your credit score rise.
As you can see, a crisis in the credit markets can be the perfect time to refinance or to apply for new mortgage loans. Be the attractive would be mortgage holder the banks want to see, and you can get a markedly lower interest rate on mortgage loans. If you are what the banks are looking for, you can indeed benefit from even the worst credit crunch.
Trend in Refinance Continues for Applications for Mortgage Loans
Posted by admin on Oct 13, 2009
Mortgage loans are looking more attractive to many consumers as the third month of 2009 nears its close, with rates hitting record lows. The rates were even lower than the previous records set in January 2009. In fact, interest rates for mortgage loans are lower than they have ever been since Freddie Mac started keeping statistics on them over 35 years ago. As the inventory of properties on the market remains high, many realtors, builders, investors and homeowners hold their breath to see if the historically low rates encourage some activity in the ailing market. It would be nice if all it took to boost the housing sector was low rates. In a post credit sector meltdown reality, however, banks and lending institutions have now instituted stricter standards. Riskier borrowers that just a couple years ago would have easily been given a loan are not being considered now. Borrowers need to have cleaner credit histories and better credit scores to obtain mortgage loans offered by most banks and lenders. In addition, more money must be put down to obtain the loans. More and more consumers are applying for mortgage loans, but less and less can now qualify.
A lot of experts in the industry anticipate that the low rates will persist in encouraging more applicants hoping to refinance mortgage loans than those wishing to take out loans for new properties. There are still many buyers who are not ready to invest in real estate when they are not sure when it will recover. Others are simply being cautious in the current economy and are hesitant to take on additional financial burdens like mortgage loans. Then, of course, some want to buy but cannot qualify for a home loan under the more restrictive lending standards. Consumers who currently own their homes and wish to refinance have to undergo the same scrutiny as new home buyers. In addition to needing higher credit scores to qualify, homeowners must now have higher amounts of equity to be eligible for a refinance. A large number of lenders now require equity of at least 20 percent. For homeowners who lost equity when real estate values dropped, this requirement can be frustrating. Those applicants who not long ago would have been able to refinance can no longer do it, because they cannot meet the equity requirements. That being said, there are a lot of homeowners who are eligible to refinance and are jumping at the chance to lock in a better mortgage interest rate than that of their original loan. After such dismal real estate times, many in the industry welcome any and all action in the real estate and loan industries, whether it is due to refinancing existing homes or purchasing new ones.
Saving Your Home From Foreclosure
Posted by admin on Jun 18, 2009
Mortgage refinancing is on the rise. Lower mortgage rates were generated by early 2009 Obama Administration relief efforts designed to help underwater homeowners and stabilize the housing market, made mortgage refinancing easier and provided hope to the beleaguered. Underwater borrowers can realize big benefits through mortgage refinancing.
The recent housing market boom lured many susceptible borrowers into taking on mortgage debt that they had no ability to repay. Aggressive and unscrupulous lenders fed the frenzy by offering adjustable rate mortgage loans with extremely low introductory rates that rose dramatically after the deal was closed, forcing borrowers to default. Many of these borrowers were left underwater, so to speak, when the housing market crashed, reducing home values to amounts lower than their outstanding mortgage balances. With nowhere else to turn, millions of these underwater borrowers simply abandoned their homes to foreclosure. Mortgage refinancing may be the best way to save these homes. As of early May, 2009, the average interest rates for 15, 20, and 30 year fixed rate first mortgage loans hovered at or near 5 percent, making mortgage refinancing even more attractive.
Mortgage refinancing functions by either paying off an existing mortgage loan or combining existing first and second mortgage loans into a single first mortgage loan. It goes without saying that lower interest rates obtained through mortgage refinancing equal lower monthly mortgage payments. Mortgage refinancing does not involve just lower interest rates, however. You can alter the term of your existing mortgage, which also directly affects the amount of your monthly payment. More of the monthly payment of a loan with a shorter term goes toward paying down principal as the interest rates tend to be lower. The upside is that your total interest costs over the life of the loan will be lower. The bad news is that the monthly payment will be higher. On the flip side, longer mortgage terms reduce the monthly payment but increase total interest costs by virtue of the greater number of payments needed to pay off the loan. Each option has its pros and cons.
Whichever way you choose, mortgage refinancing can be the answer to your prayers if you are facing foreclosure. For those who are not facing foreclosure, mortgage refinancing can offer an excellent source of extra monthly income and help you to build up the equity in your home faster.
Lowering the Total Cost of Your Home Mortgage
Posted by admin on May 7, 2009
It is uncomplicated to save money on your home mortgage. Whether you want to save money over the entire term of the home mortgage or drop your monthly payments, mortgages offer several ways to make your life easier.
The first decision you have to make is, do you want to reduce your total payment or your monthly payment? These goals are opposed. Because interest compounds, making a lower total payment means making a higher monthly payment, and making a lower monthly payment increases the amount of money you will eventually pay to your lender.
If you want a lower total payment, the solution is easy: Pay a little more each month. The extra money goes directly to your principal, so in the next month you accrue less interest and pay off more principal, which drops the following month’s interest even more. The difference is small at first, but within a few years it accumulates until you are paying noticeably less interest than you were. If you pay only $100 a month extra on a $200,000 home mortgage with a thirty year term, you will pay off the loan nine years early and save $72,000 in interest payments. If you cannot add money every month, add it when you can, or make one large extra payment a year. The impact on the amount you pay over the life of your loan will be powerful.
You do not need permission from your lender to pay extra on your home mortgage. However, if you want to drop your monthly payment, you will need your lender’s help to refinance. To lower your monthly payment when you refinance, you will need a lower interest rate (ideally two or more points less than your current rate), and you may need to add time to your term as well. Be cautious about lengthening the term of your home mortgage. Because of interest compounding, adding time to the term will not decrease the monthly payment proportionately. For example, a $100,000 home mortgage with a 5% interest rate and a 15 year term will cost $788 per month. Doubling the term more than doubles the amount of interest you will pay over the term of the loan, but drops your monthly payments by only $252, or less than a third. If your family is strapped financially, then this is a significant savings for your monthly budget, and may even enable you to keep your home. However, once you are less strapped, it makes good financial sense to pay a little extra each month to decrease the total sum you will owe on your mortgage.
As you can see, saving money on your home mortgage is easy, but requires tradeoffs. If you want to save in the long term, you must spend in the present, and vice versa. Choose which one is best for your financial situation, and keep in mind the tradeoffs you make as you manage your home mortgage.