Don't Let Your High-Interest ARM Cost You A Leg Too...
Or Your Home
There is a growing problem in our country's housing market and that is the problem of 'negative equity'. That is when you owe more than your home is worth.
According to Liz Pulliam Weston this week with MSN Money:
"Many of these homeowners may soon face a "can't pay, can't sell, can't refi" situation that could lead them to lose their homes.
Consider:
-Nearly one in 10 households with a mortgage had zero or negative equity in their homes as of September 2005, according to First American Real Estate Solutions, an arm of title-insurance company First American Corp. The study of 26 million homes in 36 states and the District of Columbia found that one in 20 home borrowers was upside-down by 10% or more.
-The situation is even grimmer for recent borrowers. Of those who bought or refinanced homes in 2005, 29% had zero or negative equity, and 15.2% were underwater by 10% or more.
-Interest rates on about a quarter of all mortgage loans outstanding, or $2 trillion, are scheduled to reset this year and next, according to Economy.com. Homeowners who opted for extremely low teaser rates in recent years could see their payments eventually double, said Christopher Cagan, First American's director of research and analytics.
-Defaults and foreclosures are already on the rise, thanks in part to higher interest rates, cooling real-estate markets and overextended borrowers. Nationally, 117,259 properties entered some stage of foreclosure in February, according to foreclosure-monitoring firm RealtyTrac, a figure that's up 68% from February 2005."
Now don't freak too badly. Here in Colorado our housing market has appreciated at single-digit levels not double-digits like in other areas of the country. People living in areas of California, Florida, and Arizona may face home depreciation which could lead to a negative equity situation.
"Submerged
Any homeowner with negative equity is at risk of foreclosure if hit with a job loss, divorce, death or other catastrophic event. But homeowners with no equity and adjustable-rate mortgages face additional risks from the loans themselves, since their payments could rise 50% or more in coming years as interest rates reset to higher levels.
In addition, borrowers with adjustable-rate mortgages are more than twice as likely to be underwater on their loans as those with fixed-rate mortgages, Cagan found.
Borrowers who chose ultra-low teaser rates of 1% to 2% in the last couple of years could be among those most at risk, Cagan said. One in five such borrowers who took out loans in 2004 and 2005 was underwater as of September. These borrowers face the sharpest payment increases as their loans reset to market rates.
A 1% teaser rate on a $300,000 mortgage that rose to a market rate of 6%, for example, would increase a family's monthly payment by 86%, from $965 to $1,799 a month. If the old payment represented 30% of a family's gross income, the new payment would represent over 55% -- a squeeze that few families could endure for long, Cagan said.
But even borrowers who opted for more-conventional loans could face unaffordable increases. The pressure on borrowers' finances will be so intense, Cagan said, that many will lose their homes. Cagan predicted that one in eight homeowners with adjustable-rate mortgages that originated in 2004 or 2005 eventually could default."
If you feel you are at risk for a negative equity scenario there are some things you can do:
"Avoid risky loans. Low teaser rates may sound appealing, but you may not be able to survive the sticker shock when the rates eventually adjust upward. If you're considering an adjustable-rate loan, check to see how far your payments could rise in the future. Don't rely on the assurances of a lender or broker that a loan won't hit its caps --nobody has a crystal ball.
Consider locking in. Fixed-rate loans have moved up from their generational lows, but they're still low in historical terms.
Protect your equity. Now is not the time to be draining your home's value through reckless home-equity borrowing. Aim to keep an equity cushion of at least 20%.
Control your debt and protect your credit. The borrowers who will have the most flexibility to refinance are the ones who keep their overall debt loads down and who maintain sterling credit. "
If you are presently stuck in a high-rate ARM loan please read my FREE REPORT by clicking on the drop down green box above -
Bill Burniece
Or Your Home
There is a growing problem in our country's housing market and that is the problem of 'negative equity'. That is when you owe more than your home is worth.
According to Liz Pulliam Weston this week with MSN Money:
"Many of these homeowners may soon face a "can't pay, can't sell, can't refi" situation that could lead them to lose their homes.
Consider:
-Nearly one in 10 households with a mortgage had zero or negative equity in their homes as of September 2005, according to First American Real Estate Solutions, an arm of title-insurance company First American Corp. The study of 26 million homes in 36 states and the District of Columbia found that one in 20 home borrowers was upside-down by 10% or more.
-The situation is even grimmer for recent borrowers. Of those who bought or refinanced homes in 2005, 29% had zero or negative equity, and 15.2% were underwater by 10% or more.
-Interest rates on about a quarter of all mortgage loans outstanding, or $2 trillion, are scheduled to reset this year and next, according to Economy.com. Homeowners who opted for extremely low teaser rates in recent years could see their payments eventually double, said Christopher Cagan, First American's director of research and analytics.
-Defaults and foreclosures are already on the rise, thanks in part to higher interest rates, cooling real-estate markets and overextended borrowers. Nationally, 117,259 properties entered some stage of foreclosure in February, according to foreclosure-monitoring firm RealtyTrac, a figure that's up 68% from February 2005."
Now don't freak too badly. Here in Colorado our housing market has appreciated at single-digit levels not double-digits like in other areas of the country. People living in areas of California, Florida, and Arizona may face home depreciation which could lead to a negative equity situation.
"Submerged
Any homeowner with negative equity is at risk of foreclosure if hit with a job loss, divorce, death or other catastrophic event. But homeowners with no equity and adjustable-rate mortgages face additional risks from the loans themselves, since their payments could rise 50% or more in coming years as interest rates reset to higher levels.
In addition, borrowers with adjustable-rate mortgages are more than twice as likely to be underwater on their loans as those with fixed-rate mortgages, Cagan found.
Borrowers who chose ultra-low teaser rates of 1% to 2% in the last couple of years could be among those most at risk, Cagan said. One in five such borrowers who took out loans in 2004 and 2005 was underwater as of September. These borrowers face the sharpest payment increases as their loans reset to market rates.
A 1% teaser rate on a $300,000 mortgage that rose to a market rate of 6%, for example, would increase a family's monthly payment by 86%, from $965 to $1,799 a month. If the old payment represented 30% of a family's gross income, the new payment would represent over 55% -- a squeeze that few families could endure for long, Cagan said.
But even borrowers who opted for more-conventional loans could face unaffordable increases. The pressure on borrowers' finances will be so intense, Cagan said, that many will lose their homes. Cagan predicted that one in eight homeowners with adjustable-rate mortgages that originated in 2004 or 2005 eventually could default."
If you feel you are at risk for a negative equity scenario there are some things you can do:
"Avoid risky loans. Low teaser rates may sound appealing, but you may not be able to survive the sticker shock when the rates eventually adjust upward. If you're considering an adjustable-rate loan, check to see how far your payments could rise in the future. Don't rely on the assurances of a lender or broker that a loan won't hit its caps --nobody has a crystal ball.
Consider locking in. Fixed-rate loans have moved up from their generational lows, but they're still low in historical terms.
Protect your equity. Now is not the time to be draining your home's value through reckless home-equity borrowing. Aim to keep an equity cushion of at least 20%.
Control your debt and protect your credit. The borrowers who will have the most flexibility to refinance are the ones who keep their overall debt loads down and who maintain sterling credit. "
If you are presently stuck in a high-rate ARM loan please read my FREE REPORT by clicking on the drop down green box above -
Bill Burniece
posted by Bill | 3:18 PM
0 Comments:
Post a Comment
<< Home