With so many people around the country losing their homes in today’s economy, this question is just part of our everyday life. I receive numerous calls from people that are late on their mortgage payments and need our help to avoid foreclosing on their homes. Many times people wait until it is too late for anyone to be able to help.
I read a statistic in a popular magazine that 86% of people who have lost their homes to foreclosure never even attempted to contact their current mortgage lender to ask for help, they just stopped making payments. No lender wants a foreclosure, they are willing to work with the borrowers and come to an agreement where everyone wins.
The first thing that anyone should do is contact their current lender to let them know that they are in financial trouble and negotiate a lower monthly payment.
If you are in no financial trouble at all but you feel that your home is becoming a liability, here is the easiest way to turn your home into an asset faster than ever before, with as little as 5% equity. (In some programs, we can even refinance your home with 125% Loan to value and no need for an appraisal but that will be a future HomeStart Capital blog post).
Here is a simple example, if you currently have a $200,000 loan in a 30 year mortgage at 5.5% with as little as 5% equity, here is the best solution to start building equity today:
- Refinance your loan into a 15 Year fixed or less, sounds easy doesn’t it? Well, it is. A good Loan Officer should be able to help you get approved for a 15 year loan whether it takes 30 days or six months it is worth to start the process as soon as possible.
- Many people believe that they do not qualify for a 15 year because the payment is higher than a 30 year fixed. However, many people do qualify but they don’t choose a 15 year mortgage because they say they will pay more towards the 30 Year loan. That rarely happens. 10 years later they still owe the same amount or little less than when they first started the loan. Fortunately or unfortunately, we are creatures of habit, if your payment is X, you will deal with it and live your life as in a 30 year loan.
- If you only have 5% equity, we eliminate your current Mortgage Insurance, do a second loan for 15% and pay it off as soon as possible. For the 80 % loan, see below how it is handled, just making minimum payments to start with until you eliminate the second loan completely.
Here are the facts of the 80% balance side by side:
$160,000 loan amount, 5.5% interest rate, $160,000 loan amount, 3.25% Interest
30 year Fixed 15 year Fixed
Principal and Interest Payment $908.46 Principal and Interest Payment $1,124.27
Here is the breakdown; it is a real eye opener:
Out of the $908.46 Out of the $1,124.27
Principal $175.13 Principal $690.94
Interest $733.33 Interest $433.33
Balance 10 years later $132,065.95 Balance 10 years later $62,183.08
You just built $70,000 more in equity in ten years by paying only $216 more than a 30 Year fixed mortgage.
With this simple transaction, you can now move your property from the liability column into an asset column.
Not all Loan Officers are created equal; call a Professional Loan Officer today to learn how you can make your current home an asset.
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