How Long Can Mortgage Rates Remain Low?

Current mortgage rates are near historical lows, but some housing experts believe rates may begin to rise this year. It is unclear what may happen to rates. However, you still have time to take advantage of low mortgage rates by refinancing, so keep the following things in mind as you shop for a loan:

1. You can’t time mortgage rates. Interest rates fluctuate all the time, so it’s difficult to predict with certainty which way they are headed at any given point in time. If you shop around for a refinance deal, consider asking your mortgage lender to lock in your rate. In most cases you must pay a fee to lock in a mortgage rate for a specific period of time, which is usually about 60 days
2. Don’t assume that your current mortgage lender has the best refinance deal. Shop around and compare deals for mortgage refinancing. The good faith estimate (GFE) can help you compare apples-to-apples. Let your current mortgage lender know about other offers to see if they can match them or give you a better deal
3. You could end up paying mortgage insurance (MI) if your property value has fallen significantly. If your home appraisal leaves you with less than 20% equity, expect to pay for MI. You can avoid MI by using any money you have saved to make a one-time payment at closing to boost your home equity
4. If you don’t have a title insurance policy to protect yourself, now is the time to get one. Title insurance is issued to protect your mortgage lender against problems that may be related to the property title. In many cases, you have to ask for an owner’s title insurance policy that protects you
5. Unless you are desperate to raise cash, it’s probably not a good idea to cash out equity when you refinance. With housing values still falling in many areas, you may want to hold on to as much equity as you can

Consider refinancing if you are struggling to make your monthly payments, have a high interest rate, or have an adjustable rate mortgage. However, refinancing your mortgage may not make sense if you plan to sell your home soon, or already have a low mortgage rate. Use a loan calculator to determine if refinancing can save you money.

Mortgage Interest

One of the most common reasons given to discourage people from paying off a mortgage early is because they won’t be able to deduct the interest they paid on their income tax returns.

Before you accept this argument hook, line, and sinker, use a mortgage payment calculator to see if the amount of interest you can deduct on a tax return beats what you can save on interest by aggressively attacking mortgage principal.

Saving and Investing

Another argument against paying off a home mortgage early involves the notion that you could earn more by investing the money you would put toward extra payments. In some cases you would earn more by investing the money. But it’s important to stay true to yourself and decide what type of risk you want to take with your cash.

Are you going to feel more secure with your money in the stock market or some other type of investment, or are you going to be happier knowing that you are going to own your home free and clear in a few years? Only you can decide if mortgage acceleration is right for your situation.

How to Accelerate Mortgage Loan Payments

If paying off a home mortgage early appeals to you, consider these popular methods:

• Make mortgage loan payments biweekly instead of monthly. This amounts to making 13 payments a year instead of only 12. Although many banks offer to set up biweekly payments for a fee, you can do it on your own. Simply cut your monthly home loan payment in half and pay that amount every two weeks.
• Use bonuses, tax refunds, and other windfalls to pay down your home loan. Make sure you direct the mortgage lender to apply the funds to your principal.
• Refinance mortgage to pay it off in 15 years. Depending upon how much principal you owe, expect to see the monthly payments increase. Make sure you have the income to support the higher mortgage payments.

Pay off Other Debt

Finally, when deciding whether or not to pay off a mortgage loan early, consider whether or not you have other debts. If you have high interest credit card debt or other loans, use extra cash to pay them off before turning your attention to acclerating mortgage payments. 

What Is a Lease-Option?

A rent-to-own or lease-option deal allows you to rent a home and pay extra each month toward purchasing the property at a later date for a specific price. When you sign the lease the seller requires you to pay an option fee of up to 5% of the purchase price.

Lease-options specify a period of time that you have to decide whether or not to actually buy the property. If you don’t excercise your option to purchase the home, you lose the option fee and the additional money paid toward the purchase. 

Why Rent-to-Own?

A rent-to-own deal can allow you “try out” a house and neighborhood before committing to buying property there. Also, if you can’t get a mortgage loan because of bad credit, a lease-option gives you time to save up money for a down payment. You also can work on cleaning up bad credit, although rent payments are not factored into the credit scoring formula, according to the Mortgage Professor. Having good credit and a hefty down payment improves the chances of a mortgage lender giving you a home loan down.

Deals Can Backfire

Use caution when entering into a rent-to-own deal. Make sure you understand all the terms and use an attorney to review the contract. Some problems that can derail your plans to buy a home this way include losing your option fee and rent payments by falling behind on rent payments. The deal also dies (and you lose the money) if you get evicted. Make sure that any home you lease-option isn’t in the foreclosure process so you don’t lose your money.

Falling Home Values

Also keep in mind that signing a lease-option contract could backfire if real-estate prices continue to drop. The home’s value could fall below the purchase price by the time you actually have to make a decision to buy it. A recent report by Fiserv and Moody’s Economy.com said the average home price in the U.S. is likely to fall 6% by 2011.

Lease-options can work in your favor if you know what you’re doing. But don’t get in over your head just because you are too eager to buy a house when you really can’t afford one. You can rent a place while taking the time to repair credit and save up a down payment without getting into a contract that could result in losing your shirt.

Help for Troubled Mortgage Loans

Funds are to go to agencies in Nevada, California, Arizona, Florida, and Michgan, states hit hardest by the housing downturn. Those states have seen housing prices plunge more than 20% from their peak.

Money can be used in various ways, including modifying home loans that are underwater or helping unemployed people struggling with mortgages to avoid foreclosure. Housing agencies can also use the aid for “programs encouraging sustainable and affordable homeownership,” according to the White House blog.

Get Help with Your Mortgage

While these programs should help many troubled homeowners, you may need to look for relief sooner than that. Contact your mortgage lender or loan servicer if you are already behind on monthly payments. You may be eligible for a mortgage refinance or loan modification.

Refinance Mortgage

Mortgage refinancing through the government’s program requires:

• Your mortgage loan to be guaranteed by Fannie Mae or Freddie Mac
• You to be current on mortgage payments
• The ability to make payments on the refinanced home loan
• You to be the owner-occupant of a one- to four-family home

If you don’t have a home mortgage guaranteed by Fannie Mae of Freddie Mac, don’t assume that your mortgage lender can’t help you. They may have some other program to help you do a mortgage refinance.

Mortgage Loan Modification

Getting approved for a home loan modification through the government’s program requires:

• Your mortgage payment (including taxes and insurance) to be greater than 31% of your monthly gross income
• You must be able to document financial hardship that is keeping you from affording your mortgage payment
• Have a first lien that originated before Jan. 1, 2009

If you are facing foreclosure, mortgage loan servicers can’t proceed with a foreclosure sale until you’ve been evaluated for help through the mortgage loan modification program.

Contact Mortgage Lender

The most important takeaway is that you must be proactive about getting help with your mortgage loan. Ducking and dodging phone calls and letters from your mortgage lender isn’t going to help your situation. Be diligent about tracking down someone at your mortgage lender who is authorized to set up some kind of deal to get back on track with your home loan.

Foreclosure Alternatives Program

CitiMortgage is offering the deed-in-lieu program to people who currently have a home loan through CitiMortgage and live in Texas, Florida, Michigan, Illinois, New Jersey, and Ohio. They must be at least 90 days delinquent on mortgages to qualify for help.

The distressed homeowners will be able to remain in their homes for six months while figuring out where to move. After six months, they must agree to sign over their property deeds to the mortgage lender.

Sanjiv Das, CEO of CitiMortgage, said in a statement, “At CitiMortgage, we’re committed to finding every solution possible to help families facing foreclosure. However, the reality is that not every homeowner has the financial ability to remain in their home. The goal of the program is to help homeowners make a smooth transition into the next chapter of their lives.”

Mortgage Lender Gives Relocation Help 

As part of the agreement, CitiMortgage provides relocation counseling and at least $1,000 to help borrowers move to other housing.

Some homeowners may receive assistance with certain housing expenses if they can’t afford them. Although borrowers are responsible for utility bills, the mortgage lender may help with other costs, such as homeowner’s association dues and escrow fees.

Keeping Homes from Being Trashed

The assistance program also requires homeowners to maintain homes in their current condition. “Once the owner moves, we get the property that’s in better condition, so we can immediately market it,” Mark Rodgers, Citigroup’s director of public affairs, told the South Florida Business Journal.  ”It’s much more likely to sell quickly in good condition than in bad condition.”

Mortgage Modification or Short Sale

Before a distressed homeowner is helped through a deed-in-lieu of foreclosure, the lender evaluates the situation to see if a mortgage modification can help. Borrowers who don’t qualify for a mortgage loan modification may get approval for a short sale. That allows them to sell for less than they owe on a home loan.

Only when a homeowner can’t be helped with a mortage loan modification or short sale are they considered for the deed-in-lieu program.