Posted: May 4, 2010 at 1:55 pm | Tags: mortgage, mortgage rates
While short sales are not ideal outcomes for mortgage rates, it’s important to be aware of the ins and outs of the sometimes-practiced event. Here, we’ll give you the basics on short sales and how they affect lenders and borrowers.
A Way to Mitigate Risk
When a borrower is facing imminent foreclosure, lenders have the option to sell the house for less than what is still owed on the loan. Some lenders choose this option to cut their losses, since it can be difficult to press on a borrower who simply can’t come up with any money.
This option is often attractive to lenders and borrowers since they can avoid foreclosure and the hefty fees that go along with foreclosure. Most of the time, short sales are structured so that the borrower still owes money, even after the short sale has completed.
Supposed Benefits for Both Parties
First of all, the lender has to agree to downplay loan balances based on a borrower’s inability to pay. When the borrower then sells the property, he or she immediately forfeits all of the funds to the lender. This way, the lender loses less money, and the borrower doesn’t get such a nasty blemish on his or her credit report.
Usually, it’s possible to conduct a short sale in a much briefer period of time than a foreclosure. Most lenders have in house loss mitigation departments wherein actuaries and other financial professionals evaluate the risks of short sales. So, expect lenders to be fully prepared whenever a short sale is proposed.
Short sales can be a good way to avoid foreclosure. Be sure you read the fine print, and take advantage of the opportunity if it means no one will foreclose.
Posted: April 14, 2010 at 1:39 pm | Tags: money market rates, mortgage
With interest rates near all-time lows, many people would benefit by refinancing their mortgage. While many people could benefit from receiving a lower interest rate, many are swayed away from a mortgage refinance due to the lengthy and tedious process as well as the costs associated with refinancing. While many people try to avoid refinancing, there are various situations where you absolutely should refinance your mortgage.
The first situation when you should refinance your mortgage is if you could save money on your monthly payment. With the average 30-year mortgage rate around 5.10%, millions of people across the country could save considerably by refinancing their mortgage. Just a few years ago, the average 30-year mortgage rate was over 6.50%. If a person with a 30-year, $300,000 mortgage was able to reduce their interest rate from 6.25% down to 5.10%, their monthly payment would reduce from $1,264 down to $1,085, a savings of $179 per month. This would save over $64,000 in interest charges over the course of a 30-year mortgage.
Another situation when you should refinance your mortgage is if you plan on staying in your home for a long period of time. Due to the high rate of foreclosure and mortgage defaults, many mortgage lenders are forced to charge high origination fees to compensate for their risk. These fees often cost up to 2% of the principal borrowed. For example, a $200,000 mortgage refinance will often come with fees of around $4,000. Using the example from above, the borrower would not break even on the transaction for 22 months ($4,000 / $179 = 22.34 months) if they were to refinance. Therefore, if the borrower thinks that they will stay in their home for more than 22 months, then they should refinance their mortgage.