Mortgage Rate News

A government report is predicting that there will be 2 million foreclosures by 2009. This is expected to produce serious effects across the country, reports Investment News:

“The current tidal wave of foreclosures will soon turn into a tsunami of losses and debt for families and communities,” said Sen. Schumer, according to a statement.

RISMedia reports that many are mobilizing to try and fix the mess caused by subprime lending practices:

Lawmakers and the White House have proposed a slew of policies to deal with the worsening subprime problem, and Treasury Secretary Henry Paulson has called housing the biggest risk to the U.S. economy. Paulson recently called for more loan servicers to modify their terms with borrowers in an effort to help families stay in their houses.

But if you want to avoid foreclosure, it is time to start planning now. Your options may be limited, and this could cause you problems in a variety of financial areas. Talk to your mortgage lender about the possibilities for your home mortgage at least six months ahead of the reset date.

Also, realize that new legislation, including a predatory lending bill and changes to FHA loans, you may have to make changes as well, in terms of adjusting your budget in order to cut expenses and make more room for higher mortgage payments.

Losing a home to foreclosure is not a fun prospect, and if you have an adjustable rate mortgage, including a subprime mortgage, now is the time to start planning ahead. You might be able to refinance to a fixed rate if your home has enough equity and your credit score is high enough. Or, if you give yourself enough time, you might be able to sell your home, or downsize and find renters who can foot the mortgage payments.

No matter what you do, though, if you want to avoid foreclosure, it is time to start making plans.

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The reason that people lend other people money is because the interest charges make such loans a good investment. And the home mortgage is quite lucrative. Lenders get back a great deal more than they allow you to borrow, as you pay interest charges every month, year after year. Well, here are some tips for paying less overall on your home mortgage:

• Make a bigger down payment. Try to make the biggest down payment you can afford. The more money you pay up front, the less you borrow. And since interest is expressed as a percentage of the total you borrow, the interest will be lower.
• Try to get a lower mortgage interest rate. Look for home mortgage loan programs that offer lower rates. This means a conventional loan is likely to be best. This lower interest rate should be applicable the entire term of the loan, and not just for a short introductory period at the front. A fixed rate is also preferable to a variable rate, as over time the fixed rate usually results in less money paid to the lender. You will need a good credit score to qualify for a lower mortgage interest rate.
• Get a shorter loan term. The longer you are paying interest, the more interest you will pay. You can reduce the amount you pay on your home mortgage by getting a shorter loan term. A 15 or 20 year home mortgage may have a higher monthly payment, but it results in paying less over the long term. And, quite often, a shorter loan term comes with a lower interest rate.
• Pay biweekly on your home mortgage. Instead of a monthly payment, consider a biweekly home mortgage payment. You make payments every other week, resulting in what amounts to one extra payment per year. This can reduce the amount of time you have your mortgage, and the interest charges you pay. Just watch out for prepayment penalties.

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One of the more interesting concepts in debt management is that of “good” debt and “bad” debt. The good news is that a home mortgage is considered good debt. But if you are not careful, even good debt can go bad.

What is bad debt?

To know the good from the bad, it helps to first understand what bad debt is. Simply put, bad debt is debt that returns nothing to you. Credit card debt, in which you constantly carry balances, is bad debt. Payday loans and their ilk, along with most other consumer debt is bad debt. A car loan can be bad debt if the car is more than you need, or if you can’t afford it. Even when you can afford it, it is hard to put a car loan in the good debt category, since it depreciates in value every year, and you only a recover a small portion of what you paid in.

What is good debt?

Good debt is debt that can be leveraged into something more valuable. Carefully considered student loans, which can result in higher paying jobs, can be good debt. A home mortgage allows you to acquire an asset that you can sell later, and so is good debt. Business loans can also be considered good debt.

When good debt goes bad

Unfortunately, many people rationalize getting into more debt than they can handle by saying it is “good.” The truth is that debt is debt, and even good debt can turn into a nightmare. Many people get a bigger home mortgage than they can afford, turning that good debt into debt that should not be. Then they lose everything, including the money they have already paid, and they have no asset to show for it.

Before you get into debt for any reason, carefully consider your options. You should always try to limit the amount of debt you have, even if it is “good,” and especially if it is “bad.” And always try to pay off all of your debt as soon as possible.

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