Archive for the ‘ARM’ Category

When should I refinance my Home ?

Tuesday, May 6th, 2008

Low interest rates and liberal underwriting guidelines caused a surge of home ownership in the US over the last 7 years. Interest rates have stayed relatively low as well. In 2004 interest rates hit a all time low around 4%. This made it very possible for lots of families to afford home ownership. As the years passed lots of families were put into adjustable rate arms (ARMs). Some families were just simply taken advantage of and were put into high rate loans when the market in fact allowed lower interest rates. Here is what to look for in order for a refinance to make financial sense.

Reasons for a home refinance & FACTS

1. To lower rate at least a minimum of 1.5%
2. Must stay in home for at least 10yrs to recoup refinance costs
3. ARM about to expire
4. Got a escrow shortage
5. Need to take out equity for cash to pay down debt

As you can see there are some steps to determine whether a refinance will make sense for you. Despite the commercials you see about no closing cost loans, believe me you are paying for it some how. There are closing costs involved in a refinance, so you want to make sure you stay in your home for a minimum of 10 years before selling or moving. The reason for this is it takes about 10 years to recoup the cost of a refinance on a home. You definitely don’t want to refinance your home unless you can lower the interest rate at least 1.5%, otherwise it’s not worth it. Families are loosing their homes all over the U.S. because they don’t have the value or the credit to refinance their home out of a costly ARM. My advice would be not to tap into any retirement to save the home, just let it go. It’s not worth touching your 401k, IRA, or any kind of retirement savings. Another problem is having escrow shortages, or the lender sold you on a no escrow loan. These two situations can get you in trouble real quick. Escrows in case you did not know are the taxes and insurance typically collected into an account and paid by the bank. If you find yourself behind on this stuff make sure you pay it as soon as possible.

Watch out for too good to be true advertisements
On TV and in the mail you probably see this really low interest rate, and typically it’s got a catch to it. Normally the low interest rates are going to cost you to get that rate, and in some cases it’s some creative loan that is very complicated. There is no miracle out there when it comes to low interest rates; most lenders have the same interest rates across the board. If a particular lender sticks out like a soar thumb because their rates are extremely low, it’s probably because it’s a gimmick to get you to call.

Author: Mike Clover

Will the current mortgage crisis affect you?

Monday, March 24th, 2008

What is the current Crisis
Over the last 10 years our country went through a real estate boom. There were three categories of loans being provided. The first was Prime, the second was Alt a, and the third was Sub-Prime loans. Typically any loan less than Prime had higher rates because of the risk of the borrower. The Sub prime loan was a creative loan that was provided and is currently the reason for around 46% of foreclosures in the U.S. This is astonishing if you think about it, and is the cause for a downturn in our economy. When you have this type of debt being wrote off, someone is affected. That is why our banking industry has had a liquidity problem. There were more loans being bought back than there was cash in the bank.

Insight on reason for foreclosures
Most of the mortgages given during this real estate boom that were Sub-Prime were adjustable rate mortgages (ARM). This type of loan looked very attractive with its initial “low teaser rates”, which typically expired after 2 years. Most of these loans were set to reset between 2 to 5 years which would cause the payment to increase dramatically. The selling point on these loans over the years was, if you keep your credit rating good you can refinance your ARM loan into a 30yr fixed mortgage once the ARM reset. Unfortunately with the declining property values and the tightening up on underwriting guideline it has made it impossible to refinance these types of loans. The result is the mortgage payment will increase dramatically and a foreclosure to follow afterward s. Since all of this has taken place we are seeing global implications on foreign investors that might have put there stock in Mortgage backed securities. IN other words investors global wide are pulling there interest out of these types of loans. Since the book is still being written on this crisis we anticipate the overall economy to feel the strain of this unfortunate crisis and for ARM loans to be less common in the future.

What can I do about my current ARM loan?
Here are the steps in regards to determining whether you can refinance your current loan.

* Determine if you have the current credit to refinance into a FHA loan.
* Determine if you have the equity to refinance your current mortgage
* Call your loan officer to determine if they can help you

If you feel you are not going to be able to afford your mortgage payment, call your lender before you are late on payments. Make arrangements with them rather than not notify them at all. If you find that your lender will not work with you there are counselors that you can talk to.
Here is a list:

Hope Now
An alliance between counselors (HUD approved), servicers and investors that strives to keep homeowners in their homes by helping them renegotiate their loans.

Homeownership Preservation Foundation
A nonprofit that creates partnerships with local governments, nonprofit organizations, borrowers and lenders to help families overcome obstacles that could result in the loss of their homes.
Counseling Agencies Approved by HUD Developments
The U.S. Department of Housing and Urban Development (HUD) sponsors housing counseling agencies throughout the country that can provide advice on buying a home, renting, defaults, foreclosures, credit issues, and reverse mortgages.
NeighborWorks Center for Foreclosure Solutions
Works to preserve homeownership in the face of rising foreclosure rates.

Financial Education/Assistance
My Money Management
A collaborative effort by the financial services industry to provide consumers with access to financial education to help inform their personal finance decision process.

FHASecure plan
A refinancing option that gives credit-worthy homeowners, who were making timely mortgage payments before their loans reset but are now in default, a second chance with a FHA insured loan product.

Here are some helpful tips for avoiding foreclosure from U.S. Housing and Urban Development.

Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.