Entries Tagged 'Credit and Debt' ↓

Falling home prices around the country have cut the amounts seniors can receive on reverse mortgages from the Federal Housing Administration. The popular FHA program is running a $798 million deficit this fiscal year, forcing the agency to cutback new reverse mortgages.

Analysts say the move amount to a cutback of 10 percent on all new FHA reverse mortgages. Those who have existing FHA reverse loans are not impacted by the change.

The National Reverse Mortgage Lenders Association estimates the policy could prevent more than 1 in 5 applicants from paying down their existing mortgage note with the funds from a new reverse mortgage. The Association says this could lead some seniors to delinquency and foreclosure.

Under the new FHA policy, a $100,000 FHA reverse mortgage would be reduced by $10,000 to $90,000 in proceeds. This reduction would leave many applicants without the money to pay off the balance of their note.

In a reverse mortgage, the bank providers homeowners 62 and older with a lump-sum payment, monthly payments, or a credit line the borrower can draw upon. The reverse mortgage is secured by the equity in the home and is only payable when the owners sell the house.

If you are upside down on a car loan you’re probably scared and a little freaked out, but fear not – lots of other consumers are in your shoes. Being upside down on a car loan simply means you owe more on the loan than the car is worth.

Given how quickly cars depreciate, it’s not difficult to get upside down in a variety of situations. Many consumers get to this point and don’t even realize it until they try to sell or trade in their car and discover that their loan balance far exceeds the value of the car.

Owing more than your car is worth is not necessarily a problem if you plan to keep the car throughout the period of your loan. But if you need to sell or trade it in, you’ll need to deal with the loan. Here are few options for what to do if you are upside down on a car loan:

Roll your old loan into a new car purchase. Some car dealers will allow you add the unpaid principal of your old car loan into the loan for a new car. You would, in effect, be paying off two loans. As you can imagine, this gets expensive and is not recommended, but if you have no other options then it may be worth exploring.

Refinance your car loan. While many people refinance home loans, not as many know that you can do the same for car loans. If you bought your car a few years ago you might find that interest rates now are much lower and you can save on your monthly payments. Just be sure that your current auto lender allows prepayment of your loan.

Make extra payments. You can pay down your car loan fairly quickly by making larger payments each month, but be sure that your lender has agreed that extra payments will go to pay down the principal owed.

Use a home equity loan to pay off your car loan. If you have access to a home equity line of credit, you can probably pay off your entire car loan at once. The advantage is that you immediately get yourself out from being upside down on your car loan and have 100% ownership. Repaying a home equity loan can also have tax benefits, so check with your accountant.

According to a study released last week, state laws requiring mortgage companies to talk to homeowners before starting the foreclosure process are not working. The National Consumer Law Center, which looked at loan modification laws in 14 states, said the measures have failed to protect homeowners because they lack any sanctions for banks that don’t comply.

“There is as yet no data to confirm that foreclosure-mediation programs anywhere have led to a substantial number of affordable and sustainable loan modification programs,” the report stated. The laws on the books have the potential to help borrowers, but they lack the same bank accountability as the voluntary federal program.

For example, in California, the state law says mortgager providers cannot begin foreclosure until 30 days after they have contacted the delinquent homeowner to explore options for the borrower to avoid foreclosure. The law went into effect in September 2008 and had the immediate effect of slowing down the foreclosure process. However, the number of foreclosures in California has now returned to its previous levels.

To improve the state programs, the report suggested several changes including requiring banks to disclose to homeowners the cost of foreclosure versus the cost of loan modification; imposing sanctions on lenders that do not negotiate in good faith; and requiring proof of who actually owns the loan. The report recommends that banks certify compliance with a mediator o court before being allowed to proceed on foreclosure.

Using a home equity loan can be an excellent way to pay for your child’s college education. A home equity loan taps into the equity that your house has built up over the years.

If you purchased your house several years ago you have probably been paying down the principal and (hopefully!) your house has appreciated in value. The difference between how much your house is worth and the amount of principal you still owe on your mortgage represents the equity you can tap into. A bank will also look at your ability to repay the loan when determining how much to lend.

Home equity debt comes in two flavors. A home equity loan is generally one lump sum with a fixed interest rate and repayment schedule. A home equity line of credit (called a HELOC) acts more like a credit card account – you are only charged for the money you draw down from the account.

Either home equity loan type can be appropriate for funding a college education. The biggest advantage to using home equity loans is that, in general, the interest you pay on this debt is tax deductible.

If you find yourself in debt, here’s a handy calculator to figure out how to reduce your debt burden through consolidation:

Home equity loans should not be your first choice when paying for college, as there are more suitable programs like student loans and various federal program available to help you with the cost. But if these other sources are not providing enough, think about tapping into your home’s equity.

A recent survey of experts by Bankrate indicates that half believe mortgage rates will continue to fall over the next month or two.

Many analysts say fears of inflation are overblown. While the Fed is printing money rapidly, this doesn’t cause inflation until it is borrowed. However, most consumers don’t have the financial ability or inclination to take on more debt.

“If you missed out on the low rates of earlier this year, get ready, because this fall we may approach the lows in mortgage rates reached earlier this year,” Michael Becker, mortgage consultant, Green Pastures Mortgage & Finance, Lutherville, Md is quoted as saying.

Current mortgages rates are only 0.05 percent away from the record low of 5.19 percent. While the economy does look to be on the mend, you can expect rates to stay fairly low for the duration of the year.