Personal Circumstances 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 Modifications, The Truth Behind The Spin

August 17th, 2009 No comments

Loan Modifications have caused an awful lot of spin in the last year. They have been portrayed as the only hope for cash strapped homeowners, as the Devil incarnate out to rip off desperate debtors. It is also the single largest investment the Government is backing in order to fend off the black clouds of the current Housing and Construction Industry crisis.

So what is the truth?

Are Loan Modifications great news for debtors or a risky business that can leave you in a worst state than when you started.

The answer is both, either or non of the above because it all depends on your personal circumstances and the way you deal with your loan modification.
Loan modifications are different to loan refinancing in that there is not a change of contract. When you refinance your mortgage or loan you have to start the whole contractual process with all the expenses for the debtor and lender that it involves. Loan modifications keep the old contract with some variations. These variations can reduce the interest rate, principal (the amount you borrowed) reduce the monthly payments and increase the length of the loan. The Government is investing trillions of dollars to encourage banks to get their act together and help borrowers in trouble to modify their loans.
This of course is not an easy task as Banks are not geared to modify loans, but to provide loans and collect payments. The whole structure of a bank is designed to do pretty much the opposite to modifying loans.

However the alternative to a home loan modification is a mortgage foreclosure which is a costly operation for the bank that is rarely the best option, certainly not for the borrower who loses his home. Having said that in extreme cases when the borrower really can’t afford the payments and the price of the home has not dropped considerably it can be better for the homeowner to sell the house and foreclose the mortgage. This means that banks generally open to negotiating a loan modification as long as they are certain that the borrower can afford the modified monthly payments or that the customer can really not afford the current payments. Convincing your bank that this is actually the case is vital. The way you do this is by providing accurate information in the format and portrayed in the light your bank wants to see.

Presenting the information you are asked for and still portraying a picture that will help you get the loan modification you need is not a simple task. It does require an understanding of how loans work. You can do this yourself but you will need to spend some time researching the forms you are asked to fill and decide how to present the facts.

Loan modifications can also be expensive procedures that cost you money you don’t have and don’t provide you any benefits. This is the case of borrowers that do not qualify for loan modifications but are still made impossible promises by dubious loan modification consultants that ask for outrageous fees upfront for their services.

Loan modification companies can provide accurate advice and help you understand the intricacies of loan modifications, helping you decide how to present your case to the bank. However it doesn’t take a rocket scientist to do this if you are willing to spend some time researching your loan and the options you have.

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Common pitfalls of debt consolidation you must avoid.

July 23rd, 2009 No comments

Common pitfalls of debt consolidation you must avoid.

Getting into debt is not something we like to make a habit of. We are therefore not always prepared to deal with serious debt and more importantly how to get out it. Unfortunately there are many companies that make a business out of taking advantage of people in debt. There is nothing wrong about making a profit out of loans, nearly all of us have needed a loan at some time, however there are loans and loans, there is debt consolidation and there are downright mistakes out there you must avoid.

What makes things harder is that what is a mistake for one person is the ideal solution for others. That is why your first step in taking control of your debt is to understand your situation, then you can adapt debt consolidation to your personal circumstances. To illustrate this point think about two different people in debt. One has a student loan and is struggling to make the monthly payments, another has maxed credit cards, a car loan and a mortgage. For customer A a debt consolidation loan would probably be a bad idea, he is probably not going to get a better interest rate than that of his student loan, while for customer B a good debt consolidating loan might be just the answer to lower his monthly payments and interest rate.

So what are the main pitfalls of debt management?

Paying off credit card debt and then continue to pile up debt on it.
This is a common problem with people who fall in cycle of debt. It is generally due to bad spending habits and can be solved with some basic but vital counseling. The best advice is to never borrow for things you can save for unless it is a necessity. This can seem an extreme and even old fashioned attitude towards debt but it can often be the only long term solution for people trapped in cycle of debt.

Paying off credit cards with other credit cards.
Granted sometimes a new credit card company might offer a good deal that may make it worthwhile to transfer your credit card debt, however making a habit out of it is going at the very least screw with your credit rating and at the worst push you into further debt.

Getting the wrong debt consolidation loan.
Debt consolidation loans can be a great way of lowering interest rates and making debts manageable or can be the worst financial mistake you ever made. Many are tempted to borrow even more when they get into a debt consolidation loan increasing the problem instead of consolidating it. Also, many of these loans are linked to your home mortgage and have high interest rates. If you use a debt consolidation loan to pay off your credit card and car loan debts and it is linked to your home or mortgage you could lose your home, something that would not happen with credit cards.

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