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Many borrowers use a refinance
to shorten the term of the mortgage.
And brace yourself, even at low rates, a shorter term means a higher monthly
payment. The benefit is that you'll build up equity faster and pay far less
in total interest over the life of the loan.
Consider Jim Neill, 48, a real estate broker and his wife Merrilyn, 55, a psychotherapist.
Recently, the couple took out a 15-year fixed rate loan at 6.75% to replace
an 8.13% ARM with a 30-year
term. Their monthly payment jumped by $200, but now they will own their
own home outright by the time they retire. In addition, the total interest on
the 15-year loan will come to $95,447, vs. $222,234 on the remaining life of
the ARM -- and that assumes their adjustable rate would have held steady at
its current 8.13%. "This is forced savings," says Jim. "When
we retire, we can scale down and take equity out of the house."
If you can't afford the payments on a 15-year mortgage, your next best means
of building equity is to refinance for less than 30 years. To do so, ask your
company to customize your new loan's term to match the years that are left on
your old loan -- if you are five years into a 30-year
mortgage, for example, ask for a 25-year loan.
|Trouble Rises Again With Subprime Mortgage Refinance Loans
According to VIKAS BAJAJ Delinquencies and foreclosures among homeowners with weak credit moved higher in the first quarter, particularly in California, Florida and other formerly hot real estate markets, according to an industry report released on Thursday.
The report, published by the Mortgage Bankers Association, came as the Federal Reserve held a hearing on what regulators could do to address aggressive abusive lending practices. Also Thursday, the latest survey showed that mortgage rates this week reached their highest level in almost a year; the national average for a 30-year mortgage was 6.74 %, up from 6.53% last week, according to Freddie Mac, the mortgage giant. The delinquency report presented a mixed picture. It indicated that more homeowners with tarnished, or subprime, credit are likely to have trouble making house payments, especially as interest rates rise. But it also suggested that, at least so far, the problems have not extended very far into the larger pool of prime borrowers, whose interest rates are lower because of their stronger credit. At the end of March, the percentage of all loans that were delinquent or in foreclosure, 6.12%, was little changed from the end of last year and up from 5.39% from March 2006.
The national numbers benefited from a decrease in the defaults among loans insured by the Federal Housing Administration.
The agency and the lenders it works with have been restructuring two out of every three loans in foreclosure, said Douglas Duncan, chief economist with the Mortgage Bankers Association.
And it appears similar efforts to renegotiate mortgages to keep borrowers in their homes may also be holding down defaults overall. "We are seeing more loan modifications and foreclosures and once loans go through either of those processes the loans go out of those databases," said Mark Zandi, chief economist at Moody’s Economy.com. For subprime borrowers, the outlook remained bleak. Nearly 19% of all subprime loans, or 1.1 million mortgages, were either delinquent by more than 30 days or in foreclosure, up from 17.9% at at the end of last year. About 140,000 subprime mortgages entered foreclosure, a process that can last several months, in the first three months. About 20,000 of those loan defaults were from borrowers living in California. "The storm of foreclosure is happening silently across the country," said Martin D. Eakes, chief executive of the Center for Community Self-Help, a nonprofit organization based in North Carolina that operates a credit union and the Center for Responsible Lending. Randall S. Kroszner, a governor on the Fed’s board, said the central bank shared responsibility over mortgage lending with other state and federal regulators. "Rising home foreclosures in the subprime market over the past year have led the board to consider whether and how it should use its rulemaking authority to address these concerns," Mr. Kroszner said. "In doing so, however, we must walk a fine line. We must determine how we can help to weed out abuses while also preserving incentives for responsible lenders."
The Fed first heard from a panel of mortgage lenders and non-profit housing groups and in the afternoon from a panel of state regulators, attorneys general and academics. In the morning, representatives from mortgage companies and an association of mortgage brokers parried, mostly in good humor, with people representing nonprofit housing groups that are the leading advocacy voice speaking on behalf of subprime borrowers. The nonprofit housing advocates attacked stated income loans, in which mortgage lenders do not verify that borrowers earn incomes listed on the residential loan application and prepayment penalties, which make it costly to refinance. Mortgage lenders generally argued against new regulations, saying that most of the practices being criticized may have been abused but can be very effective in helping lower-income borrowers if used properly.
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