23 Jan 08 Another Rate Cut Might Not Be Enough

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I might be a little off here but I think we need to stop announcing that there will be further interest rate cuts every time we cut rates. This keeps people on the sidelines and away from buying or refinancing their homes. I like that we have low interest rates but am not convinced that continually trying to boost demand is the best and only solution available to us. I think we need to implement a plan to decrease the supply of homes on the market. I’ll vote for something that helps everyone out; not just new home buyers and a few home owners with enough equity in their homes to refinance.

We need a solution that decreases a home owner’s monthly bills and encourages monthly savings. I think we can do well by proposing something like a 5-year, fixed rate interest only loan that is designed to be refinanced again after 5 years. I’m not sure if this will leave banks high and dry and hurting for repayment on the principal balance but I do know that if it worked out well, we could prevent thousands of foreclosures. Decreasing foreclosures would ultimately save banks hundreds of millions of dollars and a fixed interest only loan would take investment properties off the market because investors could then hold longer.

A good way to set this loan up so that it helps homeowners out in the long run is to make the payments gradually increase starting after the first year. The payment increase can’t be drastic, something like a 1% increase per year in which the extra money each month will go into a high interest savings account. This program gives homeowners an incentive to save, and pay on time. One incentive could be an option to add more years of interest only financing; the borrower is rewarded if all payments, including the payments to a savings account, were paid on time. For example, if all payments are made on time the homeowner would qualify for 5 more years of interest only financing and if they were late on one payment they would only qualify for 4 years. Ideally, the savings account would be used to pay down the principal or could be used as a down payment on a refinance or the purchase of a new home.

There are several ways to make this work for homeowners and investors we just need banks to get creative again without getting crazy. Maybe the government could apply more tax savings for investors? Anything we do needs address both supply and demand as well as promote long term stability for the real estate market and the economy.

Tags: adjustable rate loan, arm, federal reserve, fixed rates, Home Loans, interest only loan, interest rate cuts, mortgage loans, Real Estate, refinancing

04 Jan 08 What is a Reverse Mortgage Home Loan

There are hundreds, if not more, different types of home loans available today. Most home loans result in you putting up your home’s equity in exchange for money. You then make monthly payments to the lender to pay back the money and in turn slowly build your home’s equity back up. With a reverse mortgage home loan the terms are the exact opposite. You receive a cash amount using your home’s equity, but you don’t pay the money back like a traditional home loan. Instead, you keep the money until you die, sell the home or no longer live in it.

Qualifying terms for a reverse mortgage home loan is different than the terms for a traditional type mortgage. For a reverse mortgage you won’t be making payments so you don’t need to show proof of income. You don’t even need any type of income to qualify. Traditional mortgages require you to make payments and if you fail to make them you could lose your home. With a reverse mortgage there are no payments so there is no worry about losing your home.

Fees are still involved when getting a reverse mortgage. Expect to see an origination fee, service fees, appraisal fees and others depending on your lender. Most of these fees can be financed and applied to the mortgage so you won’t come up with out-of-pocket expenses.

To get a reverse mortgage you will follow the steps of any other type of home loan. First you find a lender and learn their terms. Fill out any application forms to start the loan process. An appraisal will then be made on your home to determine the value. Next you and the lender will come to an agreement of terms for payment options, loan interest rates, etc. After approval of the loan from the lender you will then sign all paper at the closing. The money is then paid to you in the form of payment you chose. The money can be received as cash in a lump sum, a credit line with terms you set or as a monthly payment to you. Repayment can then be made by your heirs/estate after your death, when you sell the home or when you no longer live in the home.

You can learn more about home loans in our Arizona Real Estate section.

Tags: equity, home equity, Home Loans, lender, mortgage, qualified loan, reverse mortgage, traditional mortgage