Mortgage Rate News

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Back in February, the Obama Administration revealed a foreclosure prevention plan, called Making Home Affordable. This plan is aimed at helping home owners avoid foreclosure through a combination of lower mortgage interest rates, refinancing and loan modification. Incentives for mortgage lenders and borrowers were revealed. However, the plan was mostly aimed at first home mortgages. Unfortunately, about half of the folks with at-risk first home mortgage also have second home mortgages. And nothing in the foreclosure prevention plan had much to do with this home equity loans.

So the government is introducing another plan, specifically aimed at helping reduce paymets on a second home mortgage.

A second home mortgage may have an interest rate as low as 1% under the latest foreclosure prevention measure.

Today, the Obama Administration unveiled another plan. This one is meant to help those with second home mortgages. The L.A. Times reports on the new government mortgage program:

Under the new program, the government would share lenders’ cost of reducing second-mortgage interest rates. For second-mortgage loans that amortize (those with monthly payments that include principal and interest) the loan rate would be cut to 1% for five years. For interest-only loans the rate would be cut to 2%.

The hope is that the new mortgage interest rates — resulting in lower payments — will keep home owners from defaulting on their second mortgages. This program is meant to be used alongside the Making Home Affordable program. Combined, these programs would make the overall payments owed by at-risk borrowers more affordable.

Of course, the program is voluntary, so mortgage lenders are being offered incentives to help out. One of the carrots being dangled in front of mortgage lenders, in addition to subsidies for reducing interest rates, is a one-time payment for lenders who forgive second home mortgages outright.

It’s an interesting thought, but what happens in five years when the low, low mortgage interest rates reset? While some may be in a better position to make second home (and first home) mortgage payments, many will be right back at this point.

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It’s Earth Day, and as a result I’m thinking about things that can be done to save the Earth — and maybe even save a little money. Making green home improvements is a good way to get a tax credit and help make your home more environmentally friendly. Instead of only getting 10% back on your green home improvement projects (as was the case before), you can now get 30% back. Here are some of the things you can get a tax credit for (but remember: new home construction doesn’t count — there are different tax credits for new homes):

• Updating your water heater to a more efficient model.
• Improving or increasing your insulation.
• Adding skylights (to reduce lighting energy use).
• Adding storm and/or exterior doors or sealing them.
• Adding storm and/or exterior windors.
• Sealing air leaks (with stripping, caulk, etc.)
• Updating your A/C system.
• Updating your furnace.
• Adding a biomass stove.

You can also receive tax credits for adding wind or solar energy to your home. These credits do not have a cap on them, as the above credits do (at $1,500). You can get a second home mortgage — if you qualify and have the equity — to help pay for these improvements. Then you will likely enjoy a tax deduction on the mortgage interest rate.

These changes are for this year, and Consumerism Commentary has some helpful reminders for claiming your tax credits for green home improvements:

Don’t get caught without the right equipment or paperwork. Here’s what you need to do in order to benefit for the next two tax seasons.

• Equipment must be able to last for at least five years – a two-year warranty is sufficient to prove this.
• Not every equipment model qualifies – and if it was placed in service before Feb. 17 2009, the qualifications are different. Click an option in the list above for more.
• Save your receipts and warranty
• Improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010) — use IRS Tax Form 5695 (2009 version) — it will be available late 2009 or early 2010.

Many people are interested in refinancing their homes right. This is not a big surprise, since mortgage interest rates are at historic lows. There are some great deals out there on 30-year fixed loans — and even better deals on 15-year fixed loans.

One of the issues that comes up, however, is that of refinancing when you have a home equity line of credit or a home equity loan. You will have to figure out what to do with the HELOC. It’s not always an easy matter to resolve. When this situation comes up, you have two options:

1. Consolidate the first mortgage and the HELOC together, creating one new loan.
2. Get a subordination agreement from the HELOC lender so that you can refinance the first mortgage only.

Consolidating the HELOC and the first mortgage

It is possible, when you refinance your home, to pay off both the first and second mortgage at the same time. If you have enough equity in your home, you can pay off both home loans and just have a single mortgage at your new interest rate. Many people choose this option because it is easier to accomplish and requires less paperwork and hassle.

Subordinating your HELOC

Perhaps you have a great interest rate on your HELOC and don’t want it lumped in with your first mortgage. Or maybe you want to refinance your first mortgage only for some other reason. In this case, you need to get a suboridination agreement from your HELOC lender.

When you get loans like this, they are paid off on a first-come, first-served basis. This means that if you ran into financial trouble and went into foreclosure, the first loan gets precedence. So, your home would be sold, and the proceeds would go first to the mortgage lender and then — if anything were left over — to the HELOC lender.

Your refinance changes things around. Your first mortgage is paid off by the new lender when you refinance. This moves your second home mortgage up into first position and your refinance into position behind it. Most mortgage lenders who refinance a first mortgage want to be in first position. This means that the HELOC lender has to agree to remain in second place. Remaining in second place is what is referred to as subordination.

As you might guess, paperwork is involved when it comes to subordination. You will have to get your HELOC lender to agree to remain in second position (usually doable, since that is where your second mortgage lender is anyway). This can take two weeks or more to accomplish, so make sure you plan for this.