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More and more homeowners are at risk of being forced out of their homes due to their inability to pay their monthly mortgage payments, and perhaps you are among them. Although there are programs that were created under the 2009 Economic Recovery Act that provide governmental incentive for lenders to either modify or refinance your mortgage, many homeowners assume that they will not qualify and do not even apply for this wonderful program. The truth of the matter is that thousands of American households that do qualify for refinancing or mortgage loan modification are simply not striving to get the help that they desperately need.
Refinance Or Modification – Which Is Best
There are two options from the government to help you fight foreclosure, either refinancing of your existing mortgage, or modification of the terms of your existing mortgage. Unlike traditional refinancing or loan modification where the homeowner was expected to have at least a twenty percent equity in their home in order to qualify, these new programs look at the way that real estate has decreased in value over the past few years and allows homeowners who owe as much as 105% of their home value on their mortgage to refinance to rates that are as low as 2%, or to modify the terms of their mortgages to reflect a new rate, a fixed rate, or to stretch out the number of years that the loan is paid by altering the terms of the mortgage loan during loan modification.
Another big plus for these governmental aid programs for mortgages is that Uncle Sam (the government) picks up the costs of refinancing, including costs to close the deal, which can save those who are refinancing a lot of cash. Many homeowners are hesitant to refinance because they do not have the money to pay those closing costs, which makes it great that the government can pick those up. Because of the many incentives that the government has given to financial institutions who offer their services under this program, more and more lenders have jumped on the bandwagon to provide loan modification or mortgage refinancing to a greater number of homeowners.
Lower Monthly Payments Keep You Afloat
This Economic Recovery Act provides homeowners a means to lower their monthly payment, which is especially beneficial for those people who are stuck in a variable rate mortgage that has adjusted to a new, higher rate. Your new payment can be no more than 31% of your monthly pretax income under the new Obama rules. This is welcome news for the thousands of homeowners who are paying more than half of their pretax monthly income just to stay in their homes. By making smaller monthly mortgage payments, these homeowners can keep more of their take home pay for other expenses, which can help them to use their high interest credit cards less and to pay down other debt.
And because these mortgages are rewritten or modified to cost less by charging less interest, the overall cost of the home is less as well, and the homeowner has the option to pay for the home for a greater number of years. Paying less in interest charges and more towards the principle allows the homeowner to actually pay the home off sooner than if they had stayed in a mortgage with a higher interest rate.
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