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Posts Tagged ‘debt relief’

The 40-year mortgage

The 40-year mortgage is growing more popular, but is it a true answer to debt relief? Many loan officers are promoting lower mortgage payments, citing the 40-year long term as a huge benefit to cash-strapped homeowners. But what good do they do?

President of the website MortgageGrader.com, Jeff Lazerson said that a 40 year mortgage “is a joke.” He added, “Amortizing a loan over 10 more years does very little to decrease the payment, and the industry has historically priced 40-year loans more expensively than 30-year loans, so the benefit that the consumer perceives they should get, [in reality] they don’t get.” Typically, these types of loans come with higher interest rates, and over the course of four decades, the consumer will end up paying much more in interest than a 30-year mortgage holder would.

An example

To see how a 40-year mortgage weighs against a 30-year mortgage, here is an example. If a consumer borrowed $ 100,000.00 with 5% interest for 30 years, the monthly payment works out to about $ 540. At the same rate, a 40 year mortgage would reduce monthly payments by $ 54, to $ 482.

Typically finding a 40 year and 30 year mortgage with the same interest rates is impossible. 40 year mortgages usually have an automatically higher interest rate. So, looking at the above example with a 5.25% interest rate on the 40-year mortgage, it now brings the payments to $ 499 a month. That still would bring a savings of $ 37 a month as opposed to the 30-year mortgage.

The savings are when you look at the overall interest payments over the life of a loan. Have a gander at this chart to see the numbers.

In the end, the 40 year mortgage at 5.25% means an additional $ 46,560 in payments. That’s a significant amount considering the monthly savings was only $ 37. Is having an extra $ 37 to put towards debt relief important enough to lose almost $ 50,000 in the end?

The Upside

There is a small percentage of people who would opt for the 40-year mortgage. These are people who aren’t concerned, at least too much, with the ultimate length of the loan, but want the lowest possible payment. The President of Prime Financial Services, Robert Satnick, said, “What’s nice about a 40-year loan—if it’s not an interest-only loan—is that they are contributing something, even though it’s a small amount, to pay down their principle. It increases the pride of ownership, rather than, at the end of the five years, [consumers end up] owing as much as they borrowed.”

A Way to Maneuver

The 40-year mortgage can also be managed by making larger payments. Bob Walters, Chief Economist at Quicken, stated, “The term of the loan doesn’t have to be locked into 40 years. You can’t lengthen it, but you can shorten it.” Making extra payments to pay off the loan can quickly help consumers dramatically. Walters added, “People can still benefit from a 40-year loan by paying it off quicker, taking advantage of the lower payment, but adding money to it as they move along.”

Consumers Decide

For consumers looking for monthly debt relief, the 40-year loan may be a viable answer. As long as they know that the money they pay for interest will be greater on a 40 year rather than a 30 year, if they follow the loan structure. A consumer looking for a 40 year mortgage should choose wisely, and make darn sure to understand any and all terms and conditions.

With many people unemployed right now, a lot of homeowners cannot keep up with their monthly mortgage payments. Some people have good, fixed rates but still, without employment, they still cannot keep paying. Some homeowners are worse off and have adjustable rate mortgages and find their home payments adjust to more than they can afford. Many homeowners cannot afford to stay in their current homes so they need sell and move on. However, with falling home prices, they also find themselves with upside down mortgages. That means, they owe the banks more than their homes are worth. So, what can they do?

Is Selling the Homes an Option?

The first option that comes to mind for a lot of homeowners is to sell and move on. However, if they were to sell their homes, they are going to get less for them than what they owe the lenders. So, selling might not be the best option. However, it is often a good idea to talk to a real estate agent to make absolutely sure that there is not a way to sell and walk away free and clear without having to come up with the rest of the money for the mortgage balance later on.

Should Homeowners Refinance?

Usually when you owe more than your home is worth, lenders are not going to lend. But, there could be options that allow you to refinance your home or modify your loan especially when the rates are historically low right now. If your credit is good and you wonder if refinancing is a good option for you or have any home loan questions, call your mortgage company as well as other banks for comparison. Sometimes, your own lender may not be able to help you but other banks may be able to.

Mortgage Forgiveness and Foreclosure

Many homeowners cannot sell their homes, cannot refinance and cannot modify their loans. Then their mortgage companies start to foreclose. Foreclosure severely hurt your credit so you need to call your bank and try to negotiate with them before they foreclose. If they do foreclose, however, there is the new Mortgage Forgiveness Debt Relief Act of 2007 that will work on your side. This Act allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

With lots of people unemployed in this economy, a lot of homeowners are finding it hard to keep up with their monthly mortgage payments. Some of them have good, fixed rates but still, without jobs, they still cannot pay them. Some homeowners have adjustable rate mortgages and find their home payments adjust to outrageously high amounts. Many homeowners cannot afford to stay in their current homes so they must sell and move on. However, with real estate prices falling sharply, they also find themselves having upside down mortgages. That means, they owe the banks more than their homes are worth. So, what can they do?

Should The Sell Their Homes?

The first thing to do that comes to mind for a lot of homeowners is to sell and move on. The problem is that, if they were to sell their homes, they are likely to get less for them than what they owe the lenders. So, selling may not be the most logical choice. But, it is often a good idea to talk to a real estate professional to make sure that there is no way to sell and walk away free and clear without having to come up with the rest of the money for the mortgage balance later on.

Is Refinancing an Option?

Usually when you owe more than your home is worth, mortgage companies do not want to lend. But, there may be options that allow you to refinance your home or modify your loan especially when the rates are very low right now. If you have good credit and you wonder if refinancing is good for you or have any home loan questions, call your bank as well as other banks for comparison. Sometimes, your own bank might not help you but other banks may be able to.

The Result of Foreclosure

Lots of homeowners cannot sell their homes, cannot refinance and cannot modify their loans. Then their mortgage companies start to foreclose. Foreclosure severely hurt your credit so it is advisable to call your bank and try to negotiate with them before they foreclose. If they do go ahead with foreclosure, however, there is the Mortgage Forgiveness Debt Relief Act of 2007 that will help you a little bit. This Act allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Since there are many people unemployed right now, many homeowners cannot keep up with their monthly mortgage payments. Some of them have low rates but, without employment, they still cannot keep up. Some homeowners have adjustable rate mortgages and find their home payments adjust to twice what they were paying. Many homeowners cannot afford to stay in their homes so they should sell and move on. The problem is that, with falling home prices, they also find themselves with upside down mortgages. That means, they owe the mortgage companies more than their homes are worth. So, what can they do?

The Problem of Selling

The first thing to do that comes to mind for many homeowners is to sell and move on. But, if they were to sell their homes, they are likely to get less for them than what they owe the lenders. Therefore, selling might not be the best option. However, it is a good idea to consult a Realtor to make absolutely certain that there is not a way to sell and walk away free and clear without having to come up with the rest of the money for the mortgage balance later on.

Choosing to Refinance

Often when you owe more than your home is worth, banks will not lend. However, there might be options that allow you to refinance your house or modify your loan since the rates are very low right now. If you have good credit and want to explore the option of refinancing or have any home loan questions, call your mortgage company as well as other banks for comparison. Sometimes, your own mortgage company cannot help you but other banks may be able to.

Mortgage Forgiveness and Foreclosure

Many homeowners cannot sell their homes, cannot refinance and cannot modify their loans. Then their mortgage companies try to foreclose on them. Foreclosure severely hurt your credit so it is wise to call your bank and try to negotiate with them before they foreclose. If they do go ahead with foreclosure, however, there is the new Mortgage Forgiveness Debt Relief Act of 2007 that will work on your side. This Act allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Since there are lots of people unemployed in this bad economic time, a lot of homeowners are unable to keep up with their regular mortgage payments. Some of them have good, fixed rates but still, without employment, they still cannot pay them. Some homeowners have adjustable rate mortgages and find their home payments adjust to something they cannot afford. Many homeowners cannot afford to stay in their homes so they have to sell and move on. The problem is that, with home prices falling sharply, they also find themselves having upside down mortgages. That means, they owe the banks more than their homes are worth. So, what can they do?

Should Homeowners Sell Their Homes?

The first thing that comes to mind for a lot of homeowners is to sell and move on. The problem is that, if they were to sell their homes, they are likely to get less for them than what they owe the lenders. Therefore, selling may not be the most logical choice. But, it is a good idea to talk to a real estate professional to make sure that there is not a way to sell and walk away free and clear without having to come up with the rest of the money for the mortgage balance later on.

Is Refinancing an Option?

Often when you owe more than your home is worth, lenders will not lend. But, there might be options that allow you to refinance your home or modify your loan since the rates are very low right now. If you have good credit and you wonder if refinancing is a good option for you or have any home loan questions, call your mortgage company as well as other lenders for comparison. Sometimes, your own lender might not have the resources to help you but other banks may be able to.

Debt Relief After Foreclosure

A lot of homeowners cannot sell their homes, cannot refinance and cannot modify their loans. Soon their mortgage companies start to foreclose. Foreclosure severely hurt your credit so it is wise to call your bank and try to negotiate with them before they foreclose. If they do foreclose, however, there is the Mortgage Forgiveness Debt Relief Act of 2007 that will work on your side. This Act allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.