Despite the current doom and gloom shrouding the housing market, results released Monday of a survey conducted by the American Savings Education Council and other organizations reveals that most American homeowners still expect that they'll have paid off their home mortgages completely by the time they retire.

Over three-quarters of U.S. homeowners, in fact, seem unfazed enough by the rapid rise of foreclosures and the equally rapid diminishing of housing prices to maintain full confidence in their ability to own their homes free and clear before their working years are through.

The survey, which studied the savings patterns of over 1,000 American adults, found that almost three-quarters of them also believed that they possessed enough money in savings to cover a sudden emergency while slightly over one-third of respondents believed that they may not have enough money saved to enjoy a reasonable quality of life post-retirement.

Is this merely a signal of blind optimism or is it an accurate sign that the current housing situation isn't nearly as bad as most media and government prognosticators are making it out to be? The answer to that question may be purely subjective, but one fact is certain - high-income households seem better poised to weather this storm than low-income households.

One possible way for less adequately prepared households to buoy their ability to keep their homes and pay down their mortgages with all due haste is to find ways to monetize their property, possibly by converting a portion of it into a rental, thereby supplementing their income and lowering the portion of their monthly mortgage payment that must come out of their own pockets.

 

 

A well-deserved relief plan devised back in the days of World War II is still assisting military servicemen and women and their families today in bearing the burden of keeping up with mortgage payments while during deployment.

Called the 1940 Soldiers' and Sailors' Civil Relief Act, and revamped several years ago with the Service members Civil Relief Act of 2003, the program allows for military personnel who took on a mortgage prior to going into active duty to request that their mortgage interest rates be capped at 6% until their active service is completed.

The federal program also protects military families from foreclosure caused by mortgage payment default while the eligible family member is on tour, and for up to three moments following their return.

This means that troops in the Middle East won't have to be distracted from their duties with worries of the interest rates on their adjustable rate mortgages resetting and other fallouts of the current economic climate. Reservists and National Guardsmen and women are also eligible for said relief.

This provision is not automatic - it must be requested by the eligible personnel. And it includes not just mortgage obligations predating active service but consumer debt (like credit cards) as well.

Federal government officials are also suggesting that lenders give eligible military personnel forbearance on all payments of principal due during and throughout active duty.

In light of recent revelations that mortgage insurers are having as much difficulty maintaining the status quo as mortgage lenders, we thought this would be a good time to explain a bit about mortgage insurance.

These are insurance policies that protect mortgage lenders from losing out on recuperating the money they lend should their borrowers go into default on those loans.

Many lenders require that their borro [Justify Left] wers purchase PMI in order to receive a loan, especially when the loan amount is over 80% of the home’s value or, put another way, when the downpayment made on the loan is less than 20%. Thanks to mortgage insurance, it is possible for a prospective homeowner to purchase a home with as little as just 5% down.

One of the most common types of mortgage insurance, and one often mistaken as the sole type of mortgage insurance available, is “PMI”, which stands for “Private Mortgage Insurance”. This type of mortgage insurance typically covers fixed-rate, fixed-year conventional home loans.

Another type of mortgage insurance, however, is government-backed rather than privately funded. An example of government-backed mortgage insurance is when a borrower gets an FHA loan, that is one provided by the Federal Housing Administration whose job it is to insure residential mortgages made by private lenders.

It is sometimes possible for a borrower to avoid mortgage insurance altogether, even if borrowing more than 80% of the property’s value, by consenting to a higher interest rate.

 

Like homes, like prospective homeowners, like mortgages themselves, Mortgage Calculators come in all shapes and sizes. All sorts of mortgage calculators exist to help those considering applying for a mortgage to determine how much and what type of mortgage they can afford.

The following is a brief overview of just some of the many types of these free and invaluable tools available online for your use and empowerment:

Additional Mortgage Payment Calculator: Shows you the long-term affect of paying a particular amount of extra principal per month to your mortgage.

Mortgage Comparison Calculator: Compares two user-determined mortgages side-by-side for easier decision making.

Bi-Weekly Payments Calculator: Show you how making bi-weekly payments to your mortgage instead of monthly payments affects your overall mortgage payout.

Mortgage Length Calculator: Shows the long-term savings you could achieve by making larger monthly mortgage payments.

Buy vs Rent Calculator: Compares paying rent against paying the same amount towards a mortgage.
 
Mortgage Payment Calculator: Estimates monthly payments and amortization schedule based on different loan amounts, interest rates, and mortgage terms.

Debt Ratio Calculator: Determines that all-important debt-to-income ratio that lenders weigh so heavily in determining whether or not to grant you a mortgage.

Mortgage Principal Calculator: Predicts the balance remaining on your principal after making a set number of monthly mortgage payments for a particular period of time.

HELOC Calculator: Shows how you can cut down your monthly expenses by using a home equity line of credit.
 
Points Calculator: Shows the affect of paying points on the size and duration of your monthly mortgage payments.

How Much Can I Afford?: Determines what annual salary you would need in order to adequately afford a home of a particular value.
 
Refinance Savings Calculator: Details your overall savings should you decide to refinance your current mortgage to one with new terms, including a lower interest rate.

Income Qualification Calculator: Similar to the “How Much Can I Afford?” Calculator, this one determines what type of monthly income you would need to afford a home of a certain value.

Second Loan vs PMI Calculator: Reveals how getting a second mortgage would affect your PMI payments.

Interest Only Calculator: Figures out how much home you can afford if you get an interest-only mortgage instead of a conventional mortgage.

Tax Benefits Calculator: Details your tax savings from purchasing a home after the first several years and for the overall life of the loan.

Mortgage APR Calculator: Determines the actual annual percentage rate you’d be paying with a mortgage having a particular, set interest rate.

Use any or all of these mortgage calculators to give yourself a clear idea of the repurcussions of your various mortgage options before you make any decision.

Relief from the subprime mortgage crisis – or at least the federal government’s latest attempt at it – has arrived in the form of a Bush administration proposal dubbed “Project Lifeline”.

In essence, what this program provides is allowance for homeowners more than 90 days in default on their mortgage payments extra time – 30 days to be precise – to renegotiate their mortgages, thereby avoiding foreclosure.

Unveiled yesterday, February 12, by U.S. Treasury Secretary Henry Paulson in a heavily covered joint press conference with HUD (Housing and Urban Development) Secretary Alphonso Jackson, the plan was initiated by six of the largest financial institutions in the nation who collectively service about half of the current mortgage market. Those six participating lenders being:

• Bank of America
• Citigroup
• Countrywide Financial
• JP Morgan Chase
• Washington Mutual
• Wells Fargo

Available to mortgagees with any type of mortgage – not just at-risk, subprime loans – the initiative is but one of the Bush administration’s many approaches to the current mortgage industry situation, others including a freeze on certain types of subprime loans.

Homeowners who may qualify for a reprieve from potential foreclosure with Project Lifeline will be sent notices by their lenders informing them of this new option and how to pursue it.

Not eligible for the program include homeowners who:

• already have a foreclosure scheduled within the next 30 days
• have filed for bankruptcy
• took out the mortgage in question to pay for a vacation home or an investment property

As of the close of the July-September 2007 quarter, approximately 1.3 million mortgages were either in foreclosure or seriously delinquent. Officials hope that Project Lifeline may go a long way towards ending the current housing slump. Will it work? Only time will tell.

The Wall Street Journal recently printed a piece on reverse mortgages. Its writer relayed the story of his ailing grandmother, diagnosed with bladder cancer and unable to afford the expenses involved in her care. With neither Medicare nor Medicaid an option she was left, like many Americans, in a real and dire quandry.

We all know that our homes are supposed to be our greatest asset, so there had to be a way that someone in such a situation could use their home to stave off what could easily become an unbearable liability. And, in fact, for the above-mentioned grandmother,  her home turned out to be her saving grace. She got a reverse mortgage.

In essence, a reverse mortgage is exactly what it sounds like: instead of the homeowner making monthly payments to the bank, the bank instead makes payments to the homeowner – whether monthly, in a lump sum, or as a line of credit. Why would banks do such a thing? Because the loan is paid off, with interest, when one of the following conditions is met:

• the house is sold
• the borrower permanently moves out of the home
• the borrower passes away

While this option eliminates the possibility that the homeowner can leave her home to her heirs, it also means that she can acquire the funds she needs to sustain herself through the trials and tribulations of old age. And her heirs won’t get saddled with sudden payments on a home they can’t afford.

The funds obtained through a reverse mortgage can be used for anything the borrower wants – retirement costs, medical care, a child or grandchild’s education, travel and recreation, etc. The current mortgage on the home does not need to be paid off in order for a person to apply for a reverse mortgage. And there are no credit, income, or loan repayment qualifications.

There’s a trade-off with a reverse mortgage: an elderly person or couple (over the age of 62) can give themselves a needed new and regular income, but to do so must accept the slow draining of equity built up in the home. It’s therefore wise to discuss the pros and cons of a reverse mortgage with a financial counselor before deciding to apply for one.  

To learn more about reverse mortgages, click here.
To begin the process of applying for a reverse mortgage click here.

A conventional loan is essentially any type of lender agreement that is not fully protected by the FHA (the Federal Housing Administration) or fully backed by the Veterans Administration. Potential homebuyers who have at least 3% of the purchase price available to make as a down payment may be eligible for this most popular type of loan program.

Several categories of conventional loans exist, the most common and familiar being the fixed rate mortgage. In the cases of fixed rate mortgages, the borrower will lock in an interest rate, and pay down both the principal and interest on the loan at that interest rate every month until the mortgage is paid off. The most typical term of a fixed rate loan is 30 years, though fixed rate mortgages can also be obtained for much shorter terms, the primary difference being in the size of the monthly mortgage payment.

To refinance is to pay off an existing mortgage with funds obtained from a new mortgage loan. There are numerous great reasons to refinance your mortgage, among them the following:

• Lower Interest Rates
  A prime time for many people to choose to refinance is when interest rates drop lower than the rate they’re currently paying.
• Fixed Rate
  If you currently have an adjustable rate mortgage, you may seriously want to consider refinancing to a fixed rate mortgage.
• Build Equity Faster
  Buy refinancing to a loan with a shorter loan term, you pay off your loan faster and therefore build up equity in your home faster.
• Own Your Home Free-and-Clear
  A shorter loan term generally involves larger payments, but if you can afford to make them, it could be a wise and rewarding decision to refinance your current mortgage to one with a shorter loan term.
• Get Cash in Hand
  If you already have equity built up in your home, then you can refinance for a larger amount than you currently owe and take that additional amount out in cash. This is also known as a cash-out refinance.
• Consolidate Debt
  As home mortgages generally carry far lower interest rates than other forms of debt, many people choose to refinance their home loan in order to consolidate their higher interest debt into a lower interest mortgage.

If one or more of the following applies to you, debt consolidation may be in order:

• You pay for normal living expenses with credit
• You transfer balances around from one credit card to another
• You can only afford the minimum monthly payments on your credit cards
• You have maxed out one or more credit cards
• You find yourself spending more than half your income to pay your monthly credit card and auto loan payments
• You're looking to open yet another line of credit in order to better manage your current debt, expenses, and lifestyle

Some of the most common ways to consolidate debt include:

• Debt Consolidation Loans
• Debt Settlement
• Home Equity Loan of Line of Credit
• Cash-out Refinance

Whichever option you choose to consolidate debt, just be sure that the new debt is cheaper than your current debt. In other words, after fees and finance charges are taken into account, will you be paying less to borrow the same amount of money through debt consolidation than you currently do with your debt dispersed as it is.

 

Once you’ve gotten a handle on your debt, the next step to financial freedom (and to keep you from winding up in the same position again), take the money you’ve freed and start building up an emergency fund.

Your home equity is the appraised value remaining in your home after you subtract the remaining balance you owe on your existing home mortgage(s). It can be thought of as the part of the home you actually own instead of the bank: the part you’ve paid for so far.

 

It isn’t difficult to build equity in your home, and chances are if you’ve owned your home for a while and have been making your regular mortgage payments, you probably have built a considerable amount of home equity already. Though the housing market rises and falls in cycles, the overall tendency is consistently upward. In other words, property values tend to rise over the long term.

The Federal Housing Administration (FHA) does not directly make loans to borrowers but rather provides insurance on loans made by approved lenders. FHA-insured mortgages can be obtained for single-family, multi-family, manufactured and mobile homes, and hospitals.

 

The FHA was created in 1934 by congress to help Americans to obtain a mortgage and purchase a home. Until the FHA came into being around 60% of Americans rented their homes, and most mortgages had high monthly payments, short loan terms, and stringent approval requirements. In 1965, it became part of the U.S. Department of Housing & Urban Development (HUD).

 

FHA loans differ from conventional loans in a number of ways. The down payment required for a conventional loan is typically much higher than for an FHA-insured loan. FHA loans also have lower credit requirements than conventional loans, making them more available to a wider range of potential homebuyers.

 

FHA loans offer borrowers several other valuable benefits, not least of which is those aforementioned smaller down payments. Unlike a conventional loan, which ordinarily requires 10-20% down, FHA-insured loans only require down payments as low as 3-5%. The FHA is also more flexible in calculating factors to determine whether or not to approve the loan, factors such as household income and repayment ratios. 

These days that's been the more prevailing question over whether subprime lending will return and, as it would happen, the answer to both questions are related. Many prognosticators assert that the worst of it is still ahead of us. Others believe the tide is turning.

But all agree that if we do have a recession, it will be in part due to the subprime mortgage crisis, and that we would not emerge from either a recession or the subprime mortgage crisis until and unless we emerged from both.

That is why so many people in finance and government are working to try and pull us out of this subprime mortgage crisis so that we can better avoid a recession.

Recession or no recession, a couple of things seem certain, though. Housing prices aren't likely to rise until prospective homeowners can start qualifying for less risky and expensive mortgages. And the tide of foreclosures isn't likely to ebb until people can afford to meet their current loan agreements. Both of these situations require an increase and improvement in employment and a tight leash on inflation.

Who knows if subprime lending will return? Not us. But together we can take an educated guess.

The common sense answer to the question of whether or not subprime lending will return is "Of course it will". Housing (including home lending) is cyclical, and all things cyclical ebb and tide, fade out and return.

As with securities and other forms of investment, the waxing and waning popularity of various loan instruments is most heavily dependent upon demand. The money is there to lend. The only question is how to lend it.

A lender with no borrowers is no lender at all. To stay in business, a lender has to offer instruments that have lending criteria which borrowers can actually meet. Otherwise, with no qualified borrowers, it can't do what it's in business to do - make loans.

All this is to say that as long as there is a demand for subprime loans, subprime lending will eventually be made available.