Should you refinance your mortgage?
Many homeowners are finding it increasingly difficult to afford the mortgage payments on the loans they have taken out in the last several years.
In some cases the rates have adjusted upwards drastically, in others household income has dropped. In some cases both have happened. In many cases the homeowner’s equity has dropped and to assure a quick sale the property is offered at a fire sale price.
This has resulted in a growing foreclosure crisis that in some areas of the country is claiming hundreds of homes per day. Here in Eagle County we have been fortunate that the rate is far below the national averages, but many people are struggling with their mortgage payments as the local economy slows.
Many lenders have established foreclosure workout programs that can include lowering the mortgage payment and/or spreading it over a longer term. The federal government has also called for uniform practices to streamline the modification of millions of loans.
There is also an organization called HOPE for homeowners in trouble on their loan. Their number is 1-888-995-HOPE, and I have heard varying stories in terms of being successful dealing with them as opposed to dealing directly with your lender.
The key here is modification, which means modifying your loan terms. This is different than a new loan, and for several reasons a modification can be preferable. For example, if you have an existing second mortgage you probably cannot get a new first loan without paying off the second, but your first mortgage lender can modify the terms of the loan you have.
I am hearing some tales of success where home owners locally have worked out deals to help them lower their payments, but for the most part I am hearing tales of hours spent on hold, waiting months for calls to be returned and being told that because they are not 90 days late there is no help available for them.
Every lender is different and every borrower’s story is different. If you are behind on your payments call your lender immediately and ask if they have a loan modification program available and if so how to begin the process. You will probably have to send them your income information and fill out a mini-loan application.
As some lenders such as Chase or Bank of America are dealing with tens of thousands requests, you can expect to generally wait weeks and sometimes a couple of months for your request to get looked at. I suggest being pleasantly persistent, and calling to confirm receipt of your information and checking in every 10 days or so to be sure you haven’t been lost in the chaos. Don’t wait until the day before your next payment is about to go 30 days past due to call.
I have seen one case where borrower’s rate was reduced to 2 percent for the next three years, although the borrower did have a lot of equity and good prospects for recovering from a recent financial problem.
Not everyone can have their mortgage rate knocked down to 2 percent, and the vast majority of owners don’t need any help. While it may be tempting to cry how destitute you have become or are about to become just to score a lower house payment, beware ” it will not be easy and unless you are 60 to 90 days behind on your payments or can prove your income dropped precipitously the lender is not going to seriously discuss the matter.
Also, don’t ever deliberately go late on your payments in hope of getting a loan modification. Under no circumstances is it worth it. Your credit score will look like a freight train just hit it and that will impact many things.
I have seen homeowners whose credit cards were cancelled en masse or had their credit card interest rates tripled just on one late mortgage payment. Your credit card company monitors your credit constantly and one red flag and you are out of their good graces.
Your credit score also impacts the rates you pay for all types of insurance, and impacts your ability to get a new mortgage loan for several years. In fact, one generally cannot get a mortgage loan at all for at least 24 months after a 30-day late mortgage payment. To deliberately go late on your mortgage just to try sto get a lower payment is one of the most foolish things a homeowner could do.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon. He can be reached at 970-748-0342. He welcomes mortgage-related questions from readers.