Mortgage Lowdown

Finding it difficult to pay off your bills and other loans? If you haven’t approached a debt consolidation company yet, here’s a viable alternative you could try out. Refinancing your mortgage loan. Firstly, you can reduce your monthly mortgage payments with a refinance. Secondly, it gives you some extra money to pay off other outstanding loans, credit card balances and bills. Another benefit of refinancing your mortgage is that you will get a single and lower monthly payment.

But these are not the only benefits of refinancing your home loan. The best thing about this loan is that you get a lower interest rate and thus a lower monthly payment. So, it becomes easier for you to pay this one loan instead of myriad loans with higher interest rates. Americanchronicle.com reports:

A refinance mortgage loan is basically a home loan that is requested with the sole purpose of paying off the outstanding mortgage loan in order to get more suitable terms to satisfy the borrower’s needs. However, it is possible to request a refinance mortgage loan with a loan amount higher than the remaining of the outstanding loan. With the extra money which is secured by the equity you’ve built on your home, you can do whatever you want.

Read more: Consolidate Your Debt With a Refinance Mortgage Loan

A home mortgage can help you get many tax deductions because you can deduct a portion of the interest that you pay on the mortgage. For those who don’t know, home mortgage interest is any interest that you pay on a loan for which you use your home as collateral. It need not be the first mortgage that you took to buy your home. If you have managed to pay off that loan and have secured another one, you can still get tax deducted from the interest on that loan. Only, you have to fulfill certain conditions to avail of this tax benefit:

• You have to complete a Form 1040 and include an itemized list of deductions that you included on Schedule A
• You must be the person who is legally liable for the loan
• The home you use as collateral for the loan must be your main home or a second home

There are quite a few people who have taken ARMS and are now having second thoughts about this mode of finance. Problem is they are undecided on whether they should refinance the loan during the lock in period or ride it out and see how bad it can get. The solution boils down to whether you can afford the loan as it is. Orlandosentinel.com reports:

If you plan on staying put, then you need to consider refinancing while 30-year fixed rates are still below 7 percent.

Read more: Questions, answers reveal financing dilemmas today

Looking to buy a home but rising mortgage rates giving you sleepless nights? Here are a few tips to help you smooth out problems and enjoy sound sleep:

Know Yourself: I’m not trying to be cryptic or smart. Just a simple way of saying that you should know how good or bad your credit standing is BEFORE a lender comes to know of it. Why? So there are no nasty shocks when you apply for a loan. What you need to do is pull your credit report (AnnualCreditReport.com). Once you know how you stand, you could even make certain adjustments to help you get that loan like changing your housing budget, etc.

Shop ‘n Compare: This is the best part of taking any loan. You don’t have to accept the first offer you get. You can shop for the best terms available. You can easily get online and shop for the best loan programs as well as title and escrow fees.

Lock rates: It may not seem like such a good idea in the short run, but now with the markets shifting considerably, a fixed rate is quite helpful. They are even more crucial now as experts expect the upward trend in interest rates to continue. When you get a rate lock, ensure that you get it in writing. You must also try to lock in as many costs and terms as possible.

Pre-approved mortgage: A pre-approved mortgage guarantees in writing a loan amount, interest rate and as much of the other loan terms as possible. This kind of a pre-approval allows you to shop for a home with a mortgage in hand and it will give you a negotiating edge with the seller.

Nearly 300,000 Americans lost their homes through foreclosure last year. And that is not the disturbing fact — Nearly half of these people never tried to even talk to their lenders! Delawareonline.com reports:

People in financial jeopardy often are embarrassed to talk about their problems. They don’t think their lender will help them, and some are even afraid the lender will use any information against them to foreclose faster. "There is a huge myth out there that financial institutions want to take the property back, that that is their real intention," says Marietta Rodriguez, interim director of the NeighborWorks Center for Foreclosure Solutions. In fact, foreclosing on a home and then reselling it costs a lender almost $59,000 on average, according to Freddie Mac.

Read more: Talk to lender to forestall foreclosure

Anybody who wants to have a home of his/her own knows the importance of maintaining a good credit score. For this you need to pay your bills on time, have a low debt to income ratio, etc. I know all this is easier said than done and bankruptcy is not something you will on yourself. A huge combination of factors is responsible for a person going bankrupt.

But can you give up the dream of a home just because you’ve gone bankrupt? So, if you’ve filed for bankruptcy, how does it affect your chances of getting a reasonable mortgage loan? There are several lenders who are eager to offer home mortgages to individuals with bad credit. These mortgages have a higher interest rate, which increases the monthly payment. Another question that needs answering is how long should you wait before you can buy a home? Obtaining a home after filing for bankruptcy is feasible; nonetheless, individuals who have filed must adhere to specific stipulations. To obtain a mortgage after filing a chapter 7 or chapter 13, you must wait at least two years after the bankruptcy is discharged.

Of late, many buyers faced with the rigid rise in home prices turned to interest-only mortgage loans that can offer lower monthly payments during an initial period of just interest payments. Financial experts are however not too happy with this trend because they feel there is a possibility of borrowers having difficulty making the payments for their homes when the interest-only period of the loan ended, particularly when the loans carried an adjustable rate and interest rates were rising. Washingtontimes.com reports:

"People like not having to worry about a rate change for 10 years," Mr. Gill says. "But they need to be aware that there’s quite a comeuppance at the end of 10 years, with an increase in the payment of one and a half or two times. A lot of people will probably want to get out of it at that time by refinancing or selling the home," said Bob Gill, branch manager for First Horizon Home Loans in Centreville.

Read more: Interest-only mortgages remain popular

There’s one good thing about bad news — more often than not, it sends you some form of warning before arriving. No, I’m not joking. If you look hard enough, you’ll find a pattern just about everywhere — from natural storms to stock market crashes. Well, I’m dealing with neither but with something more closer home — foreclosure. It is important to know the warning signs of foreclosure to prevent it from happening to you. So, what exactly are these signs?

Is your house worth less than what you owe? I know this sounds odd especially when house prices are not exactly crashing. But this is a very real possibility. The risk of foreclosures is very high if you’ve taken a loan in excess of 80 percent of your home’s purchase price. The problem is that you are stretching your budget well beyond your means. And in the event of a fall in prices, you could be badly stuck.

Exotic Mortgages: I think I’ve written more and enough about Adjustable Rate Mortgages, other exotic loans and the risks associated with them. For a short period of time, monthly payments are quite low and bearable, and then the problems begin.

Behind on mortgage payments: This is one of the biggest indicators of a coming problem. There could be many reasons like loss of job, illness, death in the family — of the earning member. Just about anything that contributes to reduction in income could adversely affect your payment capacity.

You can address all these factors. But time is of essence. It is important to contact a skilled lawyer before foreclosure starts.

There are many senior citizens who bought houses way back when the prices were quite low. Now the prices of these homes have doubled and in some cases, even trebled. Instead of sitting on so much idle money, many of these people want to use the equity in their homes. One way of doing this is by taking a reverse mortgage.

However, if you belong to this category of people and want to use your home’s idle equity, one of the first things you need to do is answer a few questions: "Are you in reasonably good health and do you plan to stay in your home at least five years?" If your answer is "yes," then a reverse mortgage could be ideal for your situation. There are also quite a few other things you need to take into consideration before you decide to cash in on your home’s equity. Mortgage101.com reports:

However, I do not recommend obtaining a reverse mortgage to use the cash for investments because chances of your earning at least as much as the money costs are very slim.

Read more: How to free up ‘dead money’ in home equity

You would think that with the housing market in such a big mess, investment banking’s biggest and smartest players would be hurrying for the exits. However, some of the biggest names in the business have spent hundreds of millions of dollars to snap up mortgage lenders! Investmentnews.com reports:

Investment banks see these acquisitions as a way to lock up a steady supply of home loans that they can bundle together and sell to investors for a big profit. In addition, with share prices for many mortgage lenders down steeply, the banks are getting real bargains, they say.

Read more: Investment banks enter mortgage market