Questionable Lending or Consumer Foolishness?

Questionable Lending or Consumer Foolishness?

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Playing the Blame Game

Since the beginning of 2007, news reports have been focusing on the upsurge of mortgage foreclosures with many stories slanted to cover the questionable lending practices of certain sub-prime lenders. Rarely do you read about the consumer who unwisely chose a mortgage loan option that would one day come back to bite them.

I’m not about assigning blame as there is plenty of blame to go around. However, blame looks at a problem, but does little to offer valid solutions. Instead, let’s examine some ideas leading to solutions which can help you get out of your personal mortgage mess.

Do You Qualify For Refinancing?

The first step mortgage strapped consumers should take is to see if they qualify for refinancing. Unfortunately, some borrowers got into the housing market based on conditions that are no longer favorable. If you have lost your job, seen a decrease in income, or have seen other expenses increase, you may not qualify for home refinancing.

If you are behind on payments, your lender may consider foreclosing your home. On the other hand, they could end up losing big time if you were to walk away; ask your lender if they would consider offering you new refinancing home terms instead — it is worth a shot.

Compare Your Mortgage Refinance Options

An adjustable rate mortgage may have been what got you into your current mess, therefore be cautious before choosing this option again. If you had a 3/1 adjustable rate mortgage, consider a 7/1 or 10/1 variable rate mortgage, especially if you fully expect your income to increase later on or if you plan on selling your home before an adjustment takes places.

A fixed rate mortgage is still the favorite home refi option for most homeowners and the stability of knowing that your mortgage payment never changes is comforting to many borrowers.

If a 30-year loan is too costly, consider a 40-year loan if available. You’ll pay more interest over the life of the loan with the latter option, but it could hold your monthly payments down low enough to afford home refinancing. You can do another home refi in the future should your financial situation improve.

Managing Your Mortgage Loan

An important step in mortgage refinance is to be fully acquainted with the loan you are receiving. Predatory lenders have wooed unsuspecting home buyers with loans which offered low monthly payments, but tacked on negative amortization — just as you thought you were paying down your mortgage, your overall debt burden was actually increasing! Have an accountant or an attorney review your mortgage to make sure that the loan you are getting is the loan you can afford to repay.

Consumer Savvy — The Only Way to Be

Today’s consumers must be equipped to do battle in a sea of confusing refinancing home options. Don’t be victimized, but avoid being ignorant too — home ownership should be enjoyable, not a financial misery maker.

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Categories: Home Financing

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