You Can Get Out Of The Mortgage Financing Mess!

You Can Get Out Of The Mortgage Financing Mess!

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The big word for 2007 was sub-prime, at least according to the American Dialect Society which has been tracking word trends since 1990. This is fitting because the news, for better or for worse, was focusing on the housing market all throughout 2007.

In case you aren’t sure what the term means, sub-prime represented those variable rate mortgages offered to borrowers at low rates a few years earlier. When the new, higher rates kicked in, many homeowners could not afford to meet their higher monthly obligations, with thousands of people defaulting weekly. The news media, as they are wont to do, made this topic their siren call for 2007.

If you are still being battered by a higher monthly mortgage payments, there is hope for you. Yes, the federal government is considering some sort of bail out plan, but that remains to be worked out. In the meantime, you can seek refinancing that could put you into a much more stable, fixed product and save you hundreds of dollars per month. What’s more, a new mortgage could help you avoid foreclosure and keep your credit strong.

Let’s take a look at some of the refinancing options available to you today:

Fixed Rate Mortgages — If unstable mortgage payments has you worried, then a fixed rate mortgage could be right for you. Most popular are 15-year and 30-year term mortgages, but longer term fixed rate mortgages are also available. Run the numbers to see what your projected monthly payments will be — shop around as even a 1/8 point differential could save you thousands of dollars over the course of the loan.

Fixed ARMs — Also known as combo loans, a fixed arm gives you the stability of a fixed rate mortgage, but at a rate closer to the prevailing adjustable rate loan. Instead of jumping up annually, a fixed ARM adjusts after a certain period of time usually five, seven, even ten years into the loan term. Most sub-prime mortgages adjusted within the first three years, sending shock waves across the housing industry.

Interest Only Mortgages — For some borrowers, interest only mortgages was what got them into trouble in the first place. They bought more home then they could afford and as home values dropped, they were left owning a home with zero equity — this type of loan is a problem for people wanting to stay in their homes for the long term, but it became an issue for buyers looking to sell their homes — many lost their shirts. With an interest only mortgage you pay only the interest on the loan for the first five or seven years of the loan, before you start reducing your principle. This translates into lower monthly mortgage payments, worth considering for financially-strapped consumers.

Balloon Mortgages — Not offered by all lenders, a balloon mortgage will allow you to finance your home at a low rate for a number of years before the mortgage comes due at a certain time down the road. This means you could make payments for five years before the loan is due. At that time, you’ll need to seek new financing — an option which can be especially good for people with strong credit.

Government Programs — There are a lot of financing options for the public through federal and state programs, with a few local government mortgage programs also available. Some are exclusively for new home buyers while others are reserved for current and former members of the armed forces. Check with your mortgage broker to learn about government home financing programs available for you.

Although the financing mess cannot be easily cured for many homeowners, exploring your options is critical to help you avoid foreclosure and to maintain your credit rating. The federal government may jump in later this year to help you out, but for some homeowners that move promises to be too little, too late.

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Categories: Home Financing

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