The new mortgage plan is out there, fresh out the box. The new loan mortgage plan has been designed to help more people dig themselves out the current crisis. There are actually some clever incentives for those who try and work with their mortgage even if it is upside down. So here are the two question we are all asking: What does this “new mortgage plan” offer? And who qualifies?
The mortgage plan has two main objectives:
1) To help people who are going to foreclose on their mortgage because they are late in their mortgage payments. This demographic is the priority of the plan with good reason. The avalanche in home foreclosures is affecting the whole housing and construction industry besides these are the families hardest hit by the housing crisis. The mortgage plan will help these homeowners to modify their mortgages and make them affordable.
2) The second objective is to help with the home mortgages of home owners that can’t refinance their home and take advantage of the current lower interest rates because the value of their home has dropped so much it is worth less than their mortgage. The new mortgage “deal” will help these home mortgage owners to refinance their homes with lower interest rates. Unfortunately the restrictions on this type of home mortgage are so high the number of homeowners that will benefit from it will be significantly lower.
In a nutshell the two-pronged working plan is to save the mortgages or homeowners that are behind in their payments and that would otherwise lose their homes with a mortgage modification that would reduce their monthly payments and make them affordable. The second prong aims to open under water mortgages that are worth more than the value of the home to refinancing with the current lower interest rates.
Who qualifies?
The devil is as usual in the detail but here are the main points homeowners must meet to qualify:
1) The mortgage must have been secured before January the first 2009.
2) The primary mortgage must be less than $729,500. This figure has actually been revise a few times to include the mortgages of homeowners in expensive states and areas.
3) The homeowner must live in the house he is requesting aid for. This mortgage plan is not there to save investments but family homes.
4) The homeowner must sign a financial hardship statement that documents his inability to pay his mortgage.
5) Tax returns and pay stubs must be fully documented.
6) If the homeowner pays over 55% of his income on debts he must sign up for counseling. I think this is probably one of the best ideas this mortgage plan sets out as so much of the debt trouble we get into is due to bad financial habits that can be un-learned with some practical help.
As you will have noticed the requirements on the new deal have been relaxed and more mortgage homeowners should be able to benefit, but will it be enough?
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Mortgage modifications have received a lot of publicity in the media due and with good reason, millions and millions (4-5 according to government projections) will be left homeless if they don’t make appropriate loan modifications to their mortgages.
However that does not mean that loan modifications are only for the poor and destitute. We can all take advantage of the historic low interest rates and modify our loan or mortgage. Of course this is not an option that will help everyone, in some cases loan modifications cost more than they save and the only benefit they provide is to reduce monthly payments in exchange of a huge increase in interest payments throughout the life of the loan.
How can you can find out if your are eligible for a loan modification that will save you money?
1) Check the cost.
It doesn’t get much more basic than this but it is vital that we check the price tag before we buy it. To illustrate you might have heard about companies that install solar panels to save money on your electric bill. I actually looked into one of these systems for my home and when you put figures onto paper it would have taken decades to cover the cost of my investment. I happen to believe that solar panels would be a great idea and that all new homes should be forced to have them, but you get my drift, before you “purchase” a product that provides a saving it is wise to work out exactly how much you are saving.
2) Are you planning to sell soon?
Loan modifications take time to pay off the initial cost of purchasing the mortgage modification, often two to three years. If you are planning to sell soon you might lose money.
3) Have you had your mortgage for a long time?
Mortgages are set so that at the beginning of the loan you pay most of the interest of the mortgage while paying most of the principal towards the end of the mortgage’s tenure. For example in the first 5 years payments tend to be broken up in 85% to pay for the interest of the mortgage and 15% towards the loan’s principal. If you modify your loan, your outstanding loan will be reset and you will begin to pay mostly interest with your monthly payments again. This could actually reduce your equity and provide little or no benefits. Therefore if you are in the final years of your loan it might be best to stay put.
Loan modifications are generally best suited for people who have recently bought the mortgage, are planning to own the home for a long time and who have excellent credit ratings. Nevertheless it is always a good idea to contact your bank and tell them you are seriously considering refinancing your mortgage, if you are a good customer they are likely to bend backwards to keep you on their portfolio whatever your circumstances are.
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