Mortgage Firms Pushing Refinancing During Foreclosure Crisis

Amidst all the discussion about sub prime mortgage foreclosures and a general housing slump nationwide, mortgage firms are offering refinance options to homeowners. The reasons for refinancing vary. Some homeowners seek lower monthly payments while others want to generate extra cash for personal needs or to retire high-interest credit card debt. Now, however, lenders are offering up many of the same loan products that became somewhat notorious during the last housing boom, which preceded the current crisis. These include pay-option ARMs (adjustable rate mortgages) where borrowers can pay less than the full amount of interest as payments become due.

There are major risks with this type of loan due to the fact that the unpaid balance is added on to the loan balance which then goes up instead of down as payments are made against it. When the payment increases by a specified amount (generally about 15-18%) and that requires the borrower to start paying at least enough to retire the debt on a normal, regular schedule. The end result is familiar. The monthly payments rise to a level that the homeowner cannot manage. Lenders are saying that these pay-option ARM loans are designed for homeowners who have at least 30% equity in their home, have been in residence for three years or more and have excellent credit scores of 700 or more. Unfortunately, many borrowers below these standards find these loans very attractive because they have allowed personal spending to get out of their control so that only the low-end of these low payments could be manageable.

Finance industry professionals suggest that homeowners contemplating mortgage refinancing ask the lender some very important questions. These include:

· What is the loan’s annual percentage rate (APR)? The response to this will include any points and processing fees.

· What will my monthly payment be for every month during the loan’s term? The answer to this will eliminate any surprise escalations in mid-stream.

· If monthly payments will increase, exactly when and by how much? Will my monthly payments include amounts that cover property taxes and homeowner’s insurance premiums, or must I pay these things in addition to the loan payment?

· What is the length of the loan? Is it 30 years, 20 years, 15 years or some other time?

· When I reach the end of the loan’s term, will it be paid off in full or is a separate balloon payment required?

· In the event I am able to pay off and retire the loan early, will I have to pay a pre-payment penalty of any kind? If so, how much will it be?

· In the event there is any type of ‘teaser’ rate, can I refinance before the interest rate and payment amount go up? If so, is there a penalty for doing this?

If the lender answers the above questions completely and honestly, be certain these facts are either clearly stipulated in your loan agreement or given to you in writing separately and signed by an authorized loan officer of the company. Don’t take any chances with your financial future in your zeal to obtain an immediate financial solution.

Related Posts

• What is the Difference between Handling Credit Cards and Doing so with a Mortgage Loan in Mind
• How to Increase your Credit Score and Get the Best Mortgage Loan Deals
• When Credit Score Matters
• Budding Rebound of Houses
• Lenders’ Secrets
• Mortgage Lenders Targeted by Lawmakers

Tags: Mortgage // 1 Comment »