Current Mortgage Archives – Refinance – Mortgage Refinancing Rates And Information

Refinancing: What Should You Know Before Applying for Loan Modification’s Rich Cousin

March 24th, 2010 No comments

There are few advantages to a financial meltdown, but they do exist. One of them is the significant drop in mortgage interest rates that generally comes hand in hand. You could save thousands of dollars by refinancing your mortgage now interest rates are at an historical low. The question is: can you? This article will look into the three factors that will determine if you are eligible for a mortgage refinance.

First of all, it is worth spending a paragraph on explaining the difference between a loan modification and a mortgage refinance.

Loan modifications are an emergency measure designed for people who cannot pay their mortgage. It reduces the interest rate, extends the length of a mortgage, and in some cases reduces the principal balance of the loan. This measure will have a negative effect on your credit score because you failing to pay the mortgage you signed for. Mortgage refinance is generally not an emergency measure but a strategic move from your current mortgage to another mortgage with lower interest rates. There is no negative credit score impact, because the first mortgage is paid in full before signing a new one. Loan modifications are for homeowners in trouble, while mortgage refinancing is for borrowers that can afford their payments, or pretend to do so, and want a better deal.

So what factors determine if you should refinance now? You should investigate three areas of your personal circumstances: 1) Your credit score, 2) Your home equity, and 3) If you actually save enough money for it to be worth the effort.

Let us look at these factors individually, and see how they relate to the larger picture of mortgage refinancing.

Credit Rating.

When you look for a mortgage refinance you are in effect looking for a lender that offers you a better deal on your mortgage. For a lender to invest in you, you must go through the same procedure as when you got your first loan. The lender will need to make sure you are a reliable borrower and worth the risk. The best way to assess if you will qualify is how good your credit score is. If you do not have a good credit rating, refinancing is simply not an option.

Home Equity.

You need to have some equity on your home for a lender to even consider refinancing your home. The equity on your home, that is the difference between its current value and your mortgage’s balance, is the collateral security you provide your new lender. If it is not large enough, you will not get many lenders willing to take the trouble.

Is it worth it?

There is no point in refinancing a mortgage for the sake of refinancing. You must make sure it actually saves you money. Mortgage refinancing initially cost you money; you only reap the benefits after years of a reduced interest rate. If you are not planning to stay long in your home there might be no sense in refinancing. However if the circumstances are right you could actually save thousands of dollars on your mortgage, and be one of the few that benefited from the financial meltdown.

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Loan Modifications, How to Write an Effective Hardship Letter

February 15th, 2010 No comments

Hardship letters are like any type of tale, they must be clear, they must be simple, and must drive your argument like a B52 in a battlefield – powerfully. Unfortunately, many loan modifications get thrown in the wrong stack simply because homeowners fail to explain their situation effectively.

Step 1. KISS

Keep it simple stupid! The hackneyed cliché holds true in hardship letters also. Loss mitigation departments, those that have the fascinating job of reading about every lender and his mother´s problems are overwhelmed with loan modification applications. They don´t want your autobiography, they certainly do not want 10 pages of you crying on their corporate shoulder. A good hardship letter does not have to be more than a page long.

Step 2. Address the Hardship clearly.

The key point you need to make is why you can´t afford your current mortgage, or why you won´t be able to once your mortgage rate adjusts or some other tragedy occurs. This needs to be specific, vague musings on how difficult life is will get you nowhere. Try for a reduction in income, the death of a spouse, illness or a change in the interest rate. It needs to be something specific you can prove not some vague musings on the difficulties of life.

Step 3. Express commitment.

It is very important you make it crystal clear you WANT TO PAY FOR YOUR MORTGAGE. As you probably guessed lenders do not appreciate borrowers changing their mind on paying for a loan they were very happy to sign for when they wanted to buy their home with somebody else´s cash. The letter needs show you do not want to continue delinquent, or become delinquent, but you want to find a solution so you can keep your home and they can get paid for the loan.

Let us illustrate these three points with a sample letter that follows these three steps.

You can use this sample and apply it to your personal circumstances. Keep in mind there is no one “RIGHT WAY” of writing a hardship letter, although there are plenty of wrong ways.

Some feel that a handwritten letter is more personal and has more chances of being empathized with. However, this only works if the handwriting is clear enough to be read easily.

Date:

To: (Lender Name)

Address of lender.

Re: Loan Number. (It is always a good idea to give all the reference numbers and information you can to make things as easy as possible for the loss mitigation officer, keeps him in a good mood)

(STEP 1. Remember to keep it simple and short)

To Whom It May Concern: (Generally it is better to address a specific person, however your hardship letter will probably be read by many people so there is not great advantage in being specific in this case)

The purpose of this letter is to explain the reasons why I am behind in my mortgage payments (or will be soon due to the hardship you are about to explain). After exhausting all my resources I have only one alternative left and that is to apply for a mortgage loan modification.

The main reason I am late in my payments is (STEP 2. Here is where your hardship reason comes, keep it simple and clear, and avoid vague generalities). This has caused me to become further and further behind in my payments. I cannot refinance my home because the value of my home has dropped by xxxx (this is generally viewed as a preferable option to lenders so it is a good idea to explain why it is not possible, which with the number of underwater homes is not difficult)

I am confident that if I obtain a loan modification I will be able to afford my mortgage and pay for the modified loan. I trust you will consider working with me on resolving this situation. (STEP 3. Show you are eager to pay for your mortgage if you are granted a loan modification)

Sincerely and Respectfully,

Your signature,

Co-Borrower Signature (if applicable)

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Loan Modification Applications, What Are Lenders Looking For?

February 15th, 2010 No comments

Loan modifications are often presented to us as a murky, obscure and scary financial world of shadows where normal people like you and me should not even dare to tread without the faithful advice of an expert, or preferably two, for fear of being swallowed up by an ARM, or something worse, hiding behind the bushes. Fortunately, although there is some truth in the previous depiction, we can understand the mechanics behind loan modifications and work with along with a trusted expert without playing the part of the helpless victim.

Lenders, like most predators, are simple creatures; they just use complicated jargon and scary formulas as a smoke screen. Lenders are only interested in two things: your hardship and your income, which when you really think about it, is the same thing.

This is one of the dirty secrets of loan modifications, unfortunately there are many, but this is a big one. Lenders are only interested in what you can afford to pay. If you can’t afford to pay any reasonably priced mortgage they are not interested in you as a client and will foreclose or short sale your home before you can say Jack Robinson.

Therefore, it doesn’t take a rocket scientist to realize that it is of vital importance to present yourself to your lender in the right financial light to stand a chance of success. This is tricky. You need to be able to prove there is no way you can afford the current mortgage payments while establishing without a shadow of a doubt that you are a perfect candidate to a modified loan with lower monthly payments. Get that right, and you have just increased your chances of success beyond recognition.

How do you get it right?

The key is to understand your enemy – I mean your lender. You must see through his eyes and understand how a lender calculates your income. The way lenders calculate your income when assessing your loan modification application is different to the methods used for traditional home loans. Surprisingly, this is good of thing, because guidelines are set in your favor.

The first step is to write a hardship letter deserving of a Pulitzer Prize, more on that later. Second, you must prove you do have the income to pay for your modified loan. The first step disqualifies you from your present loan, while the second is designed to qualify you for your new one.

When you calculate your income for a loan modification you can use any income, that you can prove, of course. And I mean any, it doesn’t even have to be completely legal, as long as you can prove it. For instance you can include income from a second job you get paid for… let’s call it informally, without a problem. You can include your grandparent’s SSI, or your spouse’s income, even if they aren’t on the mortgage, just as long as you can prove it.

Proof must be provided in the form of bank statements, 1099 forms or in some other documentable form. The specific guidelines change and will be detailed in your submission paperwork. All this evidence of your income is the backbone of your loan modification application, get it right! You will need it to write an effective hardship letter and to pass the NPV test, both of which you need to do to qualify for a loan modification.

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What Is A Loan Modification? The Three Keys To Loan Modification Success

February 11th, 2010 No comments

This seems a rather basic question to be asking in a website dedicated to commenting on blown mortgages and how to pick up the pieces. However, it is sometimes useful to sit back and ask ourselves the basics again to reassess our understanding and check we are still on the same page.

Loan Modifications are a change to a loan contract between the lender and the homeowner. The whole purpose is to adjust the terms of the contract so that the loan is affordable for the borrower. Loan Modifications have changed in the last years. Previously they existed only in the form of an interest rate reduction for a period of time when a delinquent borrower was suffering from a specific type of hardship, as a divorce, illness or a job loss.

Now loan modifications are provided for a wider set of circumstances and usually change the terms of the mortgage permanently.

What has not changed is the raison d’être of loan modifications; to help homeowners that can afford their home but not their current mortgage. This means that the homeowner has the ability to make reasonable monthly payments on their home but their current mortgage payments are to high.

Understanding this is vital to understand why so many homeowners apply for a trial loan but will never get one.

The second key factor that makes a homeowner eligible for a loan modification is the existence of a valid situation of hardship. A borrower must make sure they can prove the hardship and that it qualifies them to apply for a loan modification.

These are examples of hardship that give you a good chance of getting approved: ARM, adjustable rate Mortgage, reset payment shock, illness of a close family member dependant on you, loss of job (as long as there is proof you will be able to meet the modified payments), reduced income, death of the borrower (that is an excellent one), death of spouse or co-borrower, military duty, medical bills, damage to your home, not being able to sell or rent the property.

However excuses like: I didn’t realize how expensive it would be, or my realtor/lawyer/wife lied to me are just not going to work.

The third factor is accurate documentation. You don’t only have to be able to afford your home and undergo a valid situation of hardship; you also need to prove it with proper documentation.

These three points are the ABC of successful loan modifications:

a) You must be able to afford the payments of a reasonable loan modification.

b) You must be experiencing some type of valid hardship.

c) You must be able to prove it.

Convincing your lender or loan servicer of the truth of those three factors is the most important part of applying for a loan modification. You must focus all your energy in making these three points loud and clear when you communicate with your lender, whether your are speaking on the phone or writing your hardship letter.

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Loan Modification Vs Refinancing, What Is The Best Option For You

January 22nd, 2010 No comments

Loan Modifications and Home Refinancing are been talked about so much they are becoming the most used financial buzzwords by homeowners nationwide. This doesn’t mean people understand the differences or the financial consequences of either of them.

This article seeks to look into the pros and cons of Loan Modification and Mortgage Refinancing and to provide clear guidance to when it is best to modify your existing mortgage or to refinance it altogether.

Let’s start with some basic definitions for Loan Modification and Mortgage Refinancing so we are on the same page on what we mean by these terms.

Loan Modifications.

Loan modifications are used as a tool to lower the monthly payments of troubled homeowners. The whole purpose is to help people that are struggling to pay their mortgage by either lowering their interest rates, extending the term of the loan or in some cases reduce the principal balance of the loan.

You do not need to have equity on your home to apply for a loan modification, the government is actually subsidizing loan modifications through the HAMP program so that more homeowners can qualify.

Mortgage Refinancing.

Mortgage refinancing is a way for borrowers to get a better deal on their mortgage. You effectively pay off the current mortgage and negotiate a new mortgage with better conditions. This can mean lower monthly payments, lower interest rates, a shorter loan term, which reduces the cost of the loan, or a safer interest rate type (fixed, variable, ARM)

You can refinance with your existing lender or with a new lender. You do not need to be in financial difficulties to apply for a mortgage refinance. You will generally need to have some equity on your home for a lender to agree to refinance your home and be able to afford the new monthly payments which will not be necessarily be lower.

Which is the best for you?

This is a question only you can answer, because it completely depends on your personal circumstances. Here is how you work out which is the best option for you:

1) Do you have equity on your home?

Or put another way is the current value of your home lower or higher than the pending balance of your mortgage.

If you have negative equity, or owe more than the house is worth, then you are really going to struggle to refinance your home unless you are willing to pay ridiculously high interest rates, extend the term of your loan or/and increase the cost of your monthly payments. You don’t have to be a finance guru to know that is not what you want. If you are in negative equity nine times out of ten you are better of getting a loan modification, which in its current form was pretty much designed to help out borrowers in your situation.

However if you are fortunate enough to have a decent equity on your home you are very likely to find a lender that is willing to refinance your mortgage with a better deal; especially if you bought your mortgage a few years ago when interest rates were higher.

2) Are you worried about your credit score?

Loan modifications affect your credit score whatever your lender has told you. Refinancing your mortgage does not affect your credit score negatively, it might even improve it. It is true the government has created a new “label” for people that apply for loan modifications which in theory will not affect your credit score but the truth is that it will; if not right now it will in the near future. Banks and lenders are wary, quite understandably, of customers that ask for breaks on a loan agreement, and that is what you are doing when you ask for a loan modification.

Nevertheless if you are struggling to make it to the end of the month and have little or no equity your goal is to save your home and your credit rating is probably the least of your worries. Get a loan modification.

3) Does it reduce your interest rates?

This is the big question. Whichever road you take, Loan Modification or Mortgage Refinance you need to make sure your interest rates have dropped or you principal loan balance has been reduced, the latter is very unlikely I’m afraid. If your interest rates are not lower any savings on your monthly payments are going to cost you in the long run, look for a better alternative.

To illustrate, refinancing your mortgage could cost you anything from 0% to 3% of the balance of your mortgage but if you negotiate a lower interest rate, preferably a lower fixed interest rate, then you could recoup your costs in three to six months. If your interest rates have not dropped you are just giving your money away to the bank.

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Loan Modifications: Why Did The Mortgage Crisis Occur

December 5th, 2009 No comments

When looking at a crisis it often pays to see what got you there if you are to learn anything from it. The current mortgage and credit crisis was either unavoidable or a surprise depending who you ask. Loan Modifications are now being sold as the solution to the crisis as if changing the interest rate, tenure or principal of loans were the heart of the problem. But what is at the heart of this worldwide crisis?

History tells us that depressions, recessions and crisis are as part of the free market economy as free trade and private enterprise. Take this example; in 1908 a financial crisis spread panic “in every part of the globe. It was as if a volcano had burst forth in New York, causing a tidal wave that swept with disastrous power over every nation on the globe”, as reported in the The Wall Street Journal.

In 1929 there was a Great Depression, earlier there was the Long Depression (1873), a Panic in 1837 which has been described as “an American financial crisis, built on a speculative real estate market.

Any of that sound familiar? If it didn’t it soon will. But how did the current mortgage crisis occur? To answer that we need to go back a little over a quarter of a century.

Since the Reagan Administration in 1980 America has been pioneered globalization of free trade. This opened the U.S market to new products and investment unparalleled in any other economy. America’s entrepreneurial spirit combined with political freedom and a trend of economic deregulation fuelled a rapid expansion in new types of investments that also spurred an increase in international finance and commerce.

Unfortunately America’s growth came to rely on debt. The economy needed more consumers that could only buy on credit. The largest debt and purchase for many was their own home. Credit was easily available so buying wasn’t a problem; this fueled home prices in particular.The result was a housing boom that created the feeling that prices could only rise.

In 2007, as we know, the housing boom finally collapsed showing the fragile structure that had held it up behind the glossy veneer. Loans had been provided to families that couldn’t afford them, especially if the economy weakened. Most had purchased homes they couldn’t really afford. As housing prices fell, homeowners could no longer sell their homes to pay their mortgages. These bad loans were the foundation of an international web of speculation on mortgage securities and financial contracts which were toppled by the housing collapse.

The catastrophe revealed weaknesses in the U.S economy. Savings had been outpaced by spending and reckless consumption. Financial regulators underestimated the risk and fell into a dangerous state of complacency that led them to forget the lessons learnt from previous crisis.

So will loan modifications solve the problem of millions of households that risk losing their home? Some might take advantage for them but most will have to look for alternative solutions. Ultimately we will all have to relearn the lesson that we need to save more than we spend to keep our head above water.

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Obama Mortgage Plan, How People Are Lying For Aid

August 13th, 2009 No comments

Mortgage Aid is a nightmare to administer. Well, any kind of aid is hard to administer well and fairly. I have lived some years in Nicaragua a country that pretty much subsists on financial aid from the United States, the European Union and Japan. These countries try to provide Aid in a fair and effective way I’m sure, but this is hardly the case. In most situations the poor never saw any benefits and if they did it was only a portion of the original amount while the powers that be or savvy businessmen take the cream of the aid.

Mortgage Aid in the United States or any other developed country is hardly easier, which is why the Obama Mortgage plan is being played with for the profit of some savvy homeowners that are willing to lie.

How does this work?
The current Mortgage Plan provides help for homeowners that are in “imminent default” they will get help from the government that will rework their mortgage by lowering interest rates and lengthening the loan or even lowering the principal of the mortgage in order to reduce the monthly mortgage payments to under a third of the homeowner’s income.

This idea is great. It helps homeowners that spent too much on their home and helps them avoid foreclosure. Estimates place the number of Americans that will lose their homes at 5 million in the next three years even with government help.
The problem is that borrowers are lying on their income and expenses in order to get a better deal just as they lied to get a better house. It is much easier to make yourself look poor than rich.

The Obama administration aims to help 4 million borrowers, one in fifteen Americans with a mortgage, an amazing goal, through mortgage modifications. Up to now they have helped around 200,000 homeowners with trial modifications. The BIG question is how many of these homeowners really need the help and which are just playing the system.

The thing is that the lying is very easy for many Americans as it might not even seem dishonest to many. Millions of Americans are self employed. They pay themselves a wage from their business. If it is better to have a lower income in order to qualify for Mortgage Aid then they can decide to pay themselves a lower wage and invest more in their business. Many might not see anything wrong in this and I am not sure I could make a compelling argument to browbeat a plumber who decides to invest in a new van and pay himself a lower wage this year in order to get some help on the mortgage.

The real hazard is that those that need help will be pushed aside by savvier homeowners that can play the system and make their cases look “better” and have the resources and the knowhow to get the mortgage aid they want.

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Loan Modification And Loan Refinancing What Is The Difference

August 8th, 2009 No comments

Mortgage refinancing , mortgage modification, debt relief, debt consolidation, debt settlement companies… As the financial times worsen the finance terms you hear and need to understand increases. Unfortunately understanding key terms is vital if you want to make the most of the options open to borrowers in trouble. It is not advisable to trust solely in banks or debt relief companies their interests are not your own. It does not mean we have to become economists or even debt relief experts but simply understand the basics of debt and the options at your disposal.

Loan Or Mortgage Modification
Loan modification involves changing the existing contract. These changes can involve reducing the interest rate or extending the tenure or term of the loan. The key word here is changing the existing loan not starting a new one. The current Mortgage Plan that the Obama administration is pushing so hard focuses on loan modifications to reduce the monthly payments of borrowers that are struggling to pay them and risk losing their homes.

Loan / Mortgage Refinance
Loan refinance refers to cancelling an existing loan or mortgage and signing a new contract. The new contract or loan will generally provide some benefits to the borrower. For example a borrower might look for a mortgage refinance to reduce his monthly payments, increase his loan principal (i.e. borrow more) or reduce the term of the loan in order to pay less interest on the mortgage.
This option is especially interesting to borrowers who might be managing to pay their loans but want to take advantage of the lower interest rates now on offer. They can take on a new mortgage with the lower interest rates or other benefits and use it to pay off their existing mortgage or loan.

Loan Modification versus Loan Refinance.

Loan modifications tend to be “free” or at the very least cheaper than loan refinancing. Loan modification can involve a loan settlement where the bank agrees to reduce the loan. This will however affect your credit record and there is not guarantee the bank will agree to do it. Loan refinance can be expensive especially if the pre-payment fees (fees for paying the mortgage or loan early which will mean less in interest for the bank) are high. In fact high prepayment fees could make the mortgage refinance uneconomical so make sure you have done your homework before signing the dotted line. Prepayment fees are not the only expense related to loan refinance. You will have to pay for all the costs linked to a new loan, valuation, account opening, processing fees, insurance, etc… However you are in control of the situation and as long as the numbers add up you decide if you want to do it or not.

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Credit Cards, Debt Relief And Bad Choices

July 28th, 2009 No comments

Desperate situations elicit desperate measures. Many families are certainly living in desperate situations due to the current worldwide economic crisis with millions of families losing their homes in the U.S alone. These families and households are reaching levels of desperation where any option that provides an ounce of hope or even a temporary respite is considered. What options do they have?

Although there are various viable options open to borrowers in financial difficulties there are also some terrible options open for people that don´t understand the consequences of some of the ”solutions” borrowers provide. An inspiring story that hit the news this week was that of a recently divorced lady that was about to foreclose on her mortgage. Instead of accepting the charity of friends she sold double decker apple pies to friends and neighbors. The story touched many around her world and her business went international in the process saving her from losing her home.

Not all of us can imitate such feats of entrepreneurship but we can all make steps to increase our income and reduce our at least manage our debt. The first financial crouch borrowers seem to grasp for are credit cards. Credit cards are handy financial products that provide quick cash when needed; they are not a useful way of finding money to pay for loans. Paying loans with credit cards is like selling your car to by fuel, not very clever. To illustrate this just have a look at the interest rates credit cards charge, anything between 11% and 19%, even more in some countries and compare it to interest rate of a personal loan, car loan and a mortgage. It is much better to modify or renegotiate your current mortgage, take on a personal loan or even negotiate with you lenders than fall into the slippery slope of credit card debt. Another bad choice is to do nothing when you find you are not going to be able to pay your mortgage or loan payments.

It is vital to talk to your lender and find a solution you both can live with. Many banks and lenders will provide a number of breaks or solutions to borrowers that come out in the open when struggling to meet mortgage or loan payments. For instance if you are waiting for a large sum of money or are expecting a rise in income (that you can prove) lenders are often willing to provide a “payment holiday” for a set amount of time to help you get on your feet. Doing this instead of sticking your head in the ground and just letting things happen also has the benefit of not affecting your credit record which will be destroyed if you simply stop paying your loans. If you are unsure on how to deal with your debt problems be smart and talk to someone that can help you. This website describes some of the steps you can take to alleviate the stress and problems caused by debt and bad management. The choices you make will decide your financial future.

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Avoid Foreclosure, There Is Always HOPE

July 27th, 2009 No comments

There are few things scarier than losing your home and seeing your family on the street. Unfortunately many Americans and people worldwide are facing this problem due to the worldwide crisis. As we know most governments are doing their best to protect poor families that are at risk of losing their home because they are unable to meet the mortgage payments. One of the measures the American government has provided is the HOPE program. This program began under the Bush administration and the current administration has just expanded the availability and extent of the mortgage protection program for families.
Sadly many families don’t understand or know about the program and how they can benefit, if you fit this profile what can you do make the most of the helping hand the government is trying to provide. Information is as usual the most powerful weapon whether you are trying to fight a war or pay your home loan. If you are having trouble paying your mortgage and need aid to avoid foreclosure you need to get working on solving your situation.
1) Find out what your situation is exactly. This means working out how in debt you are, what your interest rate on each loan is, what your prepayment penalty is on your current mortgage and compare it with your current income. You would do well to get all the paperwork you are going to need together. Contact your mortgage provider and ask for an up-to-date review of your mortgage and the details of the contract.

2) Once you know how bad things are you can start making productive steps towards solving the situation. For instance you should get a feel for the value of your home and compare the current value with the outstanding principal on your mortgage. Once you have this information you should contact your lender. You should contact your lender before you are behind in your payments; this will show you are acting in good faith and want to solve the situation. Lenders can often provide breaks and good re-financing deals to customers that make the “right” decision. If your lender will not work with you, you might need to look to other lenders before your credit rating starts to suffer.