Mortgage Rate News

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Right now, many people are find it a rather tempting proposition to get a HELOC or some other type of home equity loan. After all, rates are quite low, and you can get a good deal. In some cases, you can get a HELOC for 1% below prime. And the prime rate is quite attractive right now. But you should be aware that in many cases you are getting an adjustable rate, and that means it is likely to go up soon.

Indeed, now that economists are saying that the recession is over, it is likely that you will see an increase in interest rates in the coming months. While it probably won’t be until well into next year before the Fed raises rates again, there is a likelihood that things will start picking up in the next couple of years. Which means that you need to be prepared. When the interest rate on a HELOC changes, it does so much like a credit card. No warning, no grace period, no caps. So you will have to make the new payment immediately.

If you have a HELOC right now, it is time to start considering your options. In some cases, it might be worth it to get a fixed rate mortgage when rates start to climb. You will have to prepare ahead of time by saving up money for closing costs and other expenses. Additionally, you will want to have good credit, so you will need work on seeing that your credit score is in good shape.

It is always a good idea to keep an eye on your finances, and this includes watching your interest rates, and understanding how they can affect your payments. A rise to your interest rate can suddenly make things difficult for you in terms of affording your payments and on other things. It is vital that you know how this works, and that you understand the implications of an adjustable rate, and how it can affect your finances.

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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: