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Money Coach

August 2008 - Posts

  • Help for your mortgage woes

    Millions of people took advantage of the many adjustable-rate mortgage options offered a couple years ago. It seemed like a good idea at the time. Housing values were climbing, houses were being flipped at huge profits, and the low initial interest rates meant buyers could get into dream homes they couldn’t otherwise afford.

     

    All that has changed. As thousands of homeowners face resetting interest rates, many find themselves in homes they can no longer afford. It might seem that there’s no way to escape the oncoming apocalypse. They can’t refinance because their “dream homes” aren’t worth what they owe. If they try to sell, they’ll be a part of a housing surplus that extends 17 months into the future. Though ARMs account for only 7% of all mortgages, they make up 42% of all foreclosures.

     

    All those dream homes are morphing into their owners’ foreclosure nightmare.

     

    The first step, of course, is to cut back on your spending, and try to augment your income. No more eating out. Cut the cable. Go back to dial up. Sell a car. Sell your jewelry. Borrow from your 401(k). Yank your kids out of private school. Do whatever it takes to avoid defaulting on your mortgage.

     What are the options? 

    If you’ve already cut your spending to the bone and are still struggling to meet your mortgage payments—or foresee that you will—contact your lender immediately, preferably before you begin missing payments. Because this has become such a widespread problem, most lenders are anxious to avoid their own further financial losses, and will work with you toward a solution other than foreclosure. Options may include:

     
    • Forebearance agreement If you’re having a temporary setback—temporary job layoff, illness, expensive family emergency—your lender may agree to temporarily lower you interest rates, or even eliminate your interest. You both need to make sure your situation is temporary, because those interest payments will be capitalized into your loan principal.

     

    • Deed-in-lieu What this means is that the lender and the owner agree to cut their losses and avoid foreclosure. The owner gives up the house and any equity on the condition that the balance of the mortgage is forgiven. Generally, deed-in-lieu is an option if the owner has suffered a long-term hardship; efforts to sell the house have been unsuccessful; there are no other mortgages or liens on the house; the house must be in immaculate, turn-key condition.

     

    • Short sale Call it negative equity, or an upside down mortgage, even if you owe more on your home than it’s worth, and you can’t make the payments, you might still be able to get out from under it. In a short sale, the lender agrees to the sale of the home, and takes whatever they can get in a depressed real estate market. In return, the gap between mortgage balance and sale price is forgiven.
     

    The most important thing to remember is that you’ve got to work with your lender to find a solution. The longer you delay, the more limited your options become.

     

    As the number of foreclosures continues to climb, more programs are being offered to help strapped homeowners save their homes. See these websites for more information:  

     

    Posted Aug 06 2008, 03:06 PM by moneycoach with 2 comment(s)
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