Help For the Underwater Homeowner
Mortgage refinancing has increased over the past few months. Lower mortgage rates were generated by early 2009 Obama Administration relief efforts designed to help underwater homeowners and stabilize the housing market, made mortgage refinancing easier and provided hope to the beleaguered. Underwater borrowers can realize big benefits through mortgage refinancing.
Many of these borrowers took advantage of the recent housing market boom by taking on mortgage debt they had no ability to repay. Less scrupulous lenders encouraged this practice by offering adjustable rate loans with attractively low introductory rates that subsequently spiked out of reach. When the housing market crashed, these borrowers were left with homes that had dramatically reduced in value, many to an amount less than that of the outstanding mortgage balance and leaving the homeowners underwater, so to speak. With no options left to them, millions of people simply walked away from their homes, allowing their lenders to foreclose and forever ruining their credit. Mortgage refinancing before default or foreclosure may help to turn things around for the remaining borrowers who stayed with or are on the brink of losing their homes. As of early May, 2009, the average interest rates for 15, 20, and 30 year fixed rate first mortgage loans hovered at or near 5 percent, making mortgage refinancing even more attractive.
The mortgage refinancing process involves either paying off an existing mortgage loan with a new one or combining first and second mortgage loans into a single first mortgage loan. It goes without saying that lower interest rates obtained through mortgage refinancing equal lower monthly mortgage payments. Mortgage refinancing does not involve just lower interest rates, however. You can alter the term of your existing mortgage, which also directly affects the amount of your monthly payment. More of the monthly payment of a loan with a shorter term goes toward paying down principal as the interest rates tend to be lower. The good news is that this decreases your total interest costs. The bad news is that the monthly payment will be higher. Conversely, increasing the term of your mortgage will reduce your monthly payment but will lengthen the amount of time you have to make those payments, thus increasing your total interest cost. Each option has its pros and cons.
Mortgage refinancing can be your road to recovery if you are facing foreclosure. For those who are not facing foreclosure, mortgage refinancing can offer an excellent source of extra monthly income and help you to build up the equity in your home faster.