Mortgage Rate News

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The news, of course, is that the recession is over. But, even though there has been a technical end to the recession, it doesn’t mean that things are suddenly going to get better. Indeed, there are still foreclosures likely, and the unpleasant fact that many people still can’t afford their mortgage payments — whether they got a home they couldn’t really afford in the first place, or whether they fell on bad luck and job loss during the recession.

As it looks as though more foreclosures could be coming in the future, and the housing market may dip again, it is little surprise that some are starting to look around for a solution to their problems. And, in some cases, the solution is presenting itself in what is known as strategic default, or foreclosure on purpose.

Walking away from your home mortgage loan

Some markets have been so hard hit, and will probably take so long to recover, that there are those that feel that the only viable option is to allow foreclosure. Indeed, Mish’s Global Economic Trend Analysis shared a letter from someone who recommended just such a course of action:

I said the answer was easy, walk away. In fact, I told her I would stop paying the mortgage and see how long it took them to foreclose. She might be able to live there 6 months or more rent free.

Her fiancé was there and he didn’t agree with my answer. He said that her credit would be ruined for ten years and that the value would come back. I responded that a foreclosure would stay on a credit report for 10 years, but if you work hard at re-establishing your credit, the score can come back in a year or two.

I have seen people plenty of people with credit scores over 700 within one year of a bankruptcy or foreclosure. As far as the value coming back, I told him that it would take 10 years or more before that value comes back.

It’s an interesting thought. But in some cases, foreclosure can be a way to get a new start — as long as you aren’t too emotionally invested in staying in your home.  But if you decide that strategic default is the way to go, you should have a plan to rebuild your credit. The letter writer on Mish’s suggested that you have a credit card and a good car. You won’t be able to get a good rate on a car loan, so you need a good one. And you need a credit card to help rebuild your credit. Just don’t max out the credit card.

What do you think? Is strategic default a viable option in some cases?

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Sometimes, it seems like we need something, and that a loan is the only way to get it. Before you decide to borrow, it is a good idea to think about whether you really need the money for something. You should also consider the type of loan you are getting. It might seem like a good idea at the time, but the end results could be scary. Here are 5 scary loans to try and avoid:

1. Interest only loans: These are mortgage loans that really are scary. And they were part of the issue in the recent mortgage market crash. You borrow money, but at first — for three, five or seven years — you only pay the interest on the loan. You aren’t making any headway on the principle. It seems like you can afford a bigger house, because the payments are so low. But once the initial term expires, and you have to start paying the principle, if you haven’t managed to refinance or seen an increase in income, things get really scary really fast. You could lose your house.
2. Car title/payday loans: These types of loans seem convenient when you’re strapped for cash, but the interest rates are high, and, in the cash of a car title loan, if you can’t repay, the car can repossessed.
3. Margin loans: These loans are used to buy stock. You can make a lot of money buying stocks margin, but you can also lose a great deal. The greater the leverage, the greater the risk.
4. Advance loans: Whether you are getting a credit card advance or an advance on your tax refund (a tax anticipation refund), the interest rates are high, and fees can be atrocious. Credit card advance loans can result in going over the limit (and getting more fees), and what happens if you don’t quite the tax refund you anticipated?
5. Co-signing: Co-signing on a loan can be scary, scary stuff. You agree to take on the obligation of the loan. This can be detrimental, since it can impact your credit if the person you are co-signing for doesn’t pay. And, of course, you don’t even get the benefits of using whatever it is you co-signed for.

Can you think of other scary loans that should be avoided?And, in honor of Halloween, a look at what Disney Villains have to say about money:

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I received this question from a reader recently, with regard to a software program that purports to help you pay off your mortgage faster:

Recently, I have learned about programs called money merge accounts? Do these programs really help you pay off your mortgage early? How do they work?

Money merge accounts are interesting programs that work with the help of software. They can, indeed, help you pay off your mortgage early. But they are costly. Cash Money Life offers a rather succinct and useful description of how these programs work:

• Buy mortgage software accelerator program (often several thousand dollars)
• Open a HELOC (a loan secured against your home, often at an adjustable rate, and sometimes through the sponsoring company or its affiliates)
• Borrow against your HELOC to pay mortgage
• Deposit your paychecks into the HELOC
• Pay your bills out of the HELOC
• Remaining funds go toward mortgage and principle

The program seems like a good idea, and it can be in some cases. However, it requires you to put your debt repayment priorities and your savings priorities on hold while you concentrate on your mortgage loan. If you don’t have any debt, and are satisfied with the amount of money that is going into your retirement account (this would be under “bills” that you pay out of your HELOC), then it might work for you.

However, to be effective, you have to be willing to follow the program exactly, and you have to have a huge surplus at the end of each month that can be used to pay down your mortgage. And, of course, there is the cost that is involved in buying the program.

Paying down your mortgage on your own

In fact, you can accomplish a faster pay off of your mortgage on your own. If you make a plan to pay your mortgage bi-weekly, or to make an extra payment on your principal each month, and budget for it, you can pay off your mortgage quicker and receive the benefits of lower interest costs.