Mortgage Rate News

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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.

Since the middle of February, we have been waiting for concrete details about President Obama’s mortgage modification program. Today, he announced the details of the plan to create a l

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oan modification that the administration says will help keep 9 million people in their homes. JPMorgan Chase, Wells Fargo and Citigroup have all agreed to participate, and will be receiving subsidies to help them cover the costs of loan modification. Other companies that are participating Select Portfolio Servicing, GMAC Mortgage and Saxon Mortgage Services. Some of the details have been floating around in general, but today is the first day that specifics have been released. CNN Money reports on some of the details of the mortgage modification program:

The modification plan calls for the servicer to reduce interest rates so that the monthly obligation is no more than 38% of a borrower’s pre-tax income, and then the government would kick in money to bring payments down to 31% of income. Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.

Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify. Also, Treasury will not provide subsidies to reduce rates to levels below 2%.

There are also incentives for mortgage loan servicers — on top of the subsidies. Incentives for servicers and mortgage holders whose borrowers keep current, as well as those that modify mortgages before the borrower falls behind, are meant to encourage lenders to do what they can to ensure that homeowners can afford their mortgages and keep paying.

Mortgage lenders and servicers aren’t the only people getting incentives: Homeowners can get up to $1,000 per year for five years if they keep up with their payments. However, instead ot an outright payment, the incentive will be applied to the loan principal. Maybe mortgage lenders, instead of getting their incentives outright, can have them applied to paying back TARP funds they have received…