Mortgage rates have been at historic lows for the last few years of the housing downturn, but over the past few weeks rates have jumped significantly, hurting many homeowners’ chances of refinancing.  When interest rates rise, monthly payments are calculated accordingly, and will increase as well, in addition to costly origination and closing fees that typically accompany a refinance.   If you are a homeowner with an adjustable-rate mortgage, you can look into refinancing and see if the net difference in monthly payments is worth the cost of refinancing.  Fixed rates on 30-year mortgages are lower than they were a year ago, so there is still a chance that you can benefit from a re-fi if you purchased your property in 2008. 

If you have an adjustable rate mortgage that is set to adjust in the next year or two, there is a good chance that your rate will be higher than when you purchased, and therefore it is worth looking into a fixed rate mortgage at a low interest rate.  If you have reasonably good credit and steady household monthly income, then you can qualify for a number of refinance options, including friendlier loan modification standards.  The federal government is encouraging such modifications and banks and lenders are being encouraged by the Obama administration to work with struggling borrowers who may be behind on payments or facing foreclosure. 

©Dvolatility - flickr

©Dvolatility – flickr

To keep mortgage rates low in hopes of keeping economy stimulated, the US government has allocated a budget of $1.25 trillion to commit to purchase mortgage-backed securities.  Because the Fed does not plan on selling these securities interests for at least 10 years, theoretically they can wait out the current housing crisis and allow time for the market to recover before exiting out of their investment.  The purchases by the Fed have enabled millions of Americans to refinance into lower interest loans, but as mortgage rates continue to rise, the governments plan could backfire against them and their gigantic investment in mortgage-backed securities.  The Feds buying of mortgage-backed securities to suppress interest rates for the American homeowner is known as “quantitative easing”.

If you have missed some payments but have decent credit and steady monthly income, you should contact your lender and see what workout options are available.  This is obviously a better alternative to foreclosure proceedings which can really be a detriment to your credit score, and hurt your chances of getting approved for home purchase in the near future.  Again, banks want to be able to make payments affordable for you, and obviously want to make their money on the interest charged on the loan amount.  If you can’t make payments, they get stuck with the property, which costs them money and banks do not want to own and manage a property.  The property is put up as collateral on the loan, but most banks would much rather see payments returned to them with interest.  Because banks have so many defaulting loans and struggling homeowners, they are providing more and more opportunity to work with you on a refinance or loan modification to avoid the foreclosure process.

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