Even Prime Mortgages Are At Risk By Peter Kenny

By now most American consumers have heard about the sub-prime mortgage crisis. It would be difficult not to have heard about it. What many consumers have not heard much about is the increasing belief that even homeowners with prime mortgages may be facing some issues in the near future.

Of particular importance is the threat of lower home values, even for those with the best of credit and the best of mortgage loans. It is no secret that as homes in a particular area begin to fall into foreclosure proceedings, surrounding homes will lose value. The problem seems to work exponentially, too, meaning the more homes that are being lost the more value surrounding homes lose.

A recent survey conducted by Zillow.com, an online real estate community, concluded that on average home values across the nation were down more than 5.5 percent from just one year ago. In some of the worst hit areas of the nation, that percentage is even higher.

The troublesome news that goes along with this is that according to Zillow.com upwards of 15 percent of nationwide homeowners who purchased their homes within the last twelve months are now in a position where they owe more on the home than what it is currently valued at. The number is even a little worse for those who purchased a home two years ago.

Most experts would offer up that temporary negative home equity is not something that should cause a person or nation to panic, unless the person cannot afford the higher mortgage payments caused by rate adjustments. It may take as long as five years before the market settles down, and if homeowners, especially those with prime loans, can simply ride it out, they value of their homes should begin to rise again.

One issue that will certainly complicate the ride it out advice is when prime loan homeowners need to move because of a job transfer or some other reason. The usual tactic is to sell the current home when it becomes apparent that a move is in the works.

If the value of the home has decreased because of sub-prime foreclosures in the areas, the owner will, of course, see less profit on the sale. Even homes under the most advantageous of mortgage loans will have to be appraised prior to a sale. If the surrounding area has lost value due to foreclosures, the owner can probably expect that his home is worth less too.

Some of the lost value can be absorbed by homeowners if the amount is not too high. For those homeowners who happen to be in hard hit areas, the loss of value may be too high to absorb and may have even caused the home's value to be less than what is owed on it. For these homeowners, the entire sale of the home may be in jeopardy.

At present, there is not much that a homeowner can do to prevent loss of value in the home if the home is located in a foreclosure area other than try to ride it out, as mentioned above. Some legislation is in the works that may help many sub-prime borrowers from having to see foreclosures, and that may be best bet yet in keeping home values fair and equitable.

Resource: http://www.isnare.com/?aid=220746&ca=Finances

Other Types Of Mortgages By Peter Kenny

In addition to the traditional fixed rate mortgage and the adjustable rate mortgage we all know about, there are some other types of mortgage instruments that are not so well known. This article details a few of those less-than-traditional mortgage methods.

Jumbo mortgage: A jumbo is nearly always considered a non-conforming loan because it exceeds the loan limit set by Fannie Mae and Freddie Mac. These are the two publicly chartered corporations that buy mortgage loans from lenders. They do this to make sure that mortgage loan money is available at all times around the nation. You should know that the single-family limit benchmark changes yearly and if you need to borrow more than that amount, you will need a jumbo mortgage. A jumbo loan usually has a higher interest rate than traditional loans.

The advantage of a jumbo mortgage is it allows you to buy a more expensive house. The disadvantage is that you will normally pay a higher interest rate.

Two-step Mortgage: These are some mortgages that use certain elements of both the fixed rate and the adjustable-rate mortgage. They might be called 2/28, 5/25 or 7/23. A two-step mortgage allows for a fixed rate and payment for an initial period, followed by one interest rate adjustment, then a fixed rate and payment for the remainder of the loan term. For example, a 5/25 has an initial fixed rate period of 5 years, then an adjustment to the rate, and then 25 years of adjusted payments.

Balloon Mortgage: A balloon mortgage is right for some people, but a bad idea for most. Home buyers in a balloon mortgage will see lower rates and payments for a specific period of time, which can be anywhere from 3 years to 10 years. At the end of that time, however, the home owner has to pay off the principal balance in one lump sum. In some cases, the mortgage may be changed to either a fixed-rate or adjustable-rate loan, but in other cases, it cannot. A balloon mortgage is most often used for those who know that they will not be in the home for long, and plans for selling it later on are somewhat firm.

Assumable Mortgage: Assumable mortgages do not happen often. An assumable loan is usually conducted with the seller and they should be approached with caution. Because they can be tricky, you should always use the services of a good attorney before getting into an assumable mortgage.

The same is true for another type of mortgage known as seller financing. With this type of loan, you pay the seller directly instead of to a bank. The property is often used as the security for the loan.

Construction Mortgages: Construction mortgages are used when building a new home is a key issue. These types of loans typically use a two-step borrowing system. The home owner may pay higher interest rates during the construction phase. Then the home owner may go through a second closing at which time the loan usually converts to a more traditional, long-term fixed-rate loan.

Resource: http://www.isnare.com/?aid=191281&ca=Finances