Home Mortgage Refinance Blog

If you are unable to get a regular loan to buy a home, don’t be disheartened. There is something called a sub-prime loan that is usually give to borrowers who are unable to raise prime loans due to problems with their credit history, income levels or age. Sub-prime loans carry a higher rate of interest and may have other accompanying charges that may not apply to a prime-loan.

Under ideal circumstances, if you were able to secure a prime loan, you would have been able to buy the property of your choice. But, if you are willing to compromise a bit, you can actually buy a property that is a little smaller that the one of your choice against a sub-prime mortgage. Since this loan will carry a higher level of interest rate, your monthly outflow will be higher and if you bought the smaller property it would fit into your budget. But, all the same you can become a homeowner.

Sub-prime loans are loans extended by banks to customers at rates and conditions that are inferior to prime loans. These loans are given to customers, who may have a poor credit history or are in the low income bracket or are not eligible for prime loans due to other reasons.

Since the financier considers that it is riskier to lend to such groups, it wants a higher return and it charges a higher interest rate. The loans may also be accompanied by stiffer penalties and charges. Predatory loans on the other hand are different. They may be veiled under the garb of sub-prime loans, but they are offered by financiers, who are termed as loan-to-own lenders. They structure the loans with the objective to finally acquire the property. Their loans usually carry high interest rates, stiff prepayment penalties and high upfront fees, but are well devised so that they stipulate to regulations. These financiers often target older people, who eventually loose the ability to repay and forfeit the property to the lender.

Various states are now in the process to implement laws to curb such predatory practises.

Click here to read more about predatory lending.

On the back of a 50% jump in property prices in Massachusetts the highest in the country, residents took fashionable mortgages, which were extremely attractive when the interest rates were low, but are turning ugly now.

The rapidly increasing realty prices induced buyers to stretch themselves and take the maximum possible loan including 100% financing. With the interest rates having shot up, their monthly payouts have risen drastically and for some the recourse to refinancing is also not possible as they financed their properties to 100% value.

These residents can recourse to selling their properties and closing their loans, but effectively, with the realty markets being on the soft side, these residents will be in a no profit situation. If these residents wait and want to exit their properties later, the realty prices may have actually slipped and they will not even recover enough to close out their mortgage.

Click here to find out more about the plight of the Massachusetts' residents.

According to a new report from Fiserv Lending Solutions, a Las Vegas based organization, realty markets in the US are in for a flattened growth. According to its forecast, median home prices across the US will inch up just 1.6%.

The report also suggests, that cities that experienced high growth in property prices are going to see a dip in prices and areas that were not overheated may grow. According to the report’s findings, Las Vegas will probably experience the steepest dip in its property prices of up to 8.2%. Prices in New York are expected to dip 2.43%, LA 3% and Washington 1.9%.

Areas, where realty prices had stagnated are expected to grow. Prices in Houston are expected to grow by 6.1%, in San Antonio by 8.3% and in Memphis by 7.8%.

These corrections are likely to even out property prices across the US and bring them in line with true values.

Click here to access nationwide forecasts.

If you had take an adjustable rate mortgage to acquire you home, in all probability the applicable interest rate would have adjusted to over 6% after a series of interest rate hikes by the US Fed. It is now a little uncertain if the Fed will raise rates further or hold them steady. An increase in the rate will dent your pocket further and if you have a fixed instalment scheme for your mortgage, you will start loosing equity in your home as a greater part of your payment will go towards servicing the interest component.

While ARM rates have gone up, long term interest rates are quite steady and almost the same as ARM rates. For a homeowner with an ARM mortgage, it may be ideal to get his mortgage refinanced and convert it to a fixed rate loan. In refinancing, the homeowner will be able to cash out some home equity as well.

Click here to see what CNN has to say about the changing interest rate scenario.

If you went if in for refinance a year ago, it was probably for getting a lower rate or for cashing out on home equity. The scenario has changed drastically now. Now, people are refinancing, so that they don’t get stuck with a higher rate.

Also, people are considering a very short term perspective while taking their decisions. The rates are not very high now; the market has experienced rates as high as 8% to 10%. However, what people are uncomfortable with is the fact that their adjustable rate mortgages, for which the interest rates have moved up substantially, may become unmanageable if the rates were to move up further. Thus people want to hedge their position by locking in long term fixed rate mortgages at this point of time.

There is reason to cheer for those who are facing spiralling growth in their adjustable rate mortgages, long term rates have started to soften and are down to 6.10%, although still higher from the previous year’s levels.

This is especially favourable for those who had taken interest only loans, and the payouts for which are about to spiral. They can refinance their existing mortgages in favour of fixed rate loans and hedge their position against future fluctuations.

It may also be an appropriate time for them to cash-out on home equity and utilize the excess amount to either indulge in home improvement or for other purposes.

To read more on interest rates click here.

You took an adjustable rate mortgage and someone you know took a similar mortgage, and both were identical in structure, but today you find that your monthly payouts are higher than that of the other identical mortgage. You wonder what went wrong and you start scrutinizing your mortgage documentation kit.

The interest rate in an adjustable rate mortgage is pegged to an index. The interest rate will move in line with this index. All these indices will not behave in the same way. Some may be more volatile than the others. The reason why your monthly payout has become higher than that of the other similar loan is because the financial index to which your loan is pegged has moved up more than that of the other loan.

The main indices to which ARMs are pegged include the London Interbank Offered Rate (LIBOR), Treasury Constant Maturity index (TCM), one-year Treasury bill, the 12-month TCM average on the one-year T-bill, and the cost of funds index (COFI) amongst others.

With the interest rates having shot up, refinancing activity in the realty market has become sluggish. The chief product in demand is the 30 year long term fixed mortgage and the runaway activity of the last few years is absent from the market.

Under such circumstances, financiers increasingly have to struggle harder to compete for a shrinking market and are innovating new methods to capture business. Some are increasing their sales force, while others are increasing their geographic reach. Financiers are also attempting to innovate product-variants to suit the customers’ requirements.

To read more about the intensified competition in the mortgage market clickhere

The consistent rise in short term interest rates has had a positive impact on consumer borrowing. Surprising as this may sound, it is true. What has actually happened is that rising interest rates have led to a substantial fall in home mortgage, which customers had been using as a means to raise cheap capital, used both for buying a home and for consumer spending. A consistent rise in realty prices allowed customers to take fresh loans or refinance their older loans and use the excess money for consumer spending.

Borrowing through non-mortgage loans and credit cards had slowed drastically over the past five years, but has shown signs of growth in the last two months of the previous year, with short term interest rates having firmed up.

Check out what Bloomberg has to say about increasing consumer spending.