Equity Loanhome loans, equity loans, home equity loans

Unless your mortgage is still held by its original lender (and most aren’t), the odds are you don’t even qualify for a traditional modification. Until this year, any mortgage that had been sold to a new loan provider couldn’t even request a modification of terms. Although this rule has been eased up a bit due to the current financial crisis, there is still no guarantee that you can even apply through a secondary lender.

The best way to see if your loan qualifies for modification is to ask your lender. Timing is crucial when negotiating a loan modification. Most lenders require you to be behind on your payments to qualify – but not too far behind. Your best strategy is to ask for help as soon as you realize you can’t make your current payments, but before any type of foreclosure proceedings begin.

Your lender is going to want to know why you can’t make your current mortgage payments and how you intend to make the new one. They would rather negotiate new loan terms with someone who unintentionally got into financial trouble due to an illness or lost job, versus someone who overspent.

The second reason to get an Adjustable Rate Mortgage is because the interest rates are so much lower than fixed rates. And since these great rates are fixed for a particular period, five years on a 5-year ARM and three years on a 3-year ARM, there really is no risk, at all. Again, in most adjustable rate mortgage programs, the interest rate does not adjust monthly or yearly
(although programs with these types of adjustment periods do exist at much lower rates).

The numbers are even more staggering if you finance $150,000. The fixed rate payment is $875.36 and the 5-year ARM payment is $716.12 – a monthly savings of $159.24 and over $9,500 for five years. If you buy or refinance a home and finance $200,000 or more, you’ll save between $13,000 and $15,000 over five years, with the 4% rate as opposed to the fixed rate of 5.75%.

Bank that money and you can buy a decent car for cash, or pay for a year of college, or take a European vacation. Pretty powerful stuff, huh? Now, if you’re one of those people who is really into cutting into the term of your mortgage, and you can afford the higher fixed-rate payment, simply apply the difference back to the principal loan amount. You’ll build equity in your home very quickly, and you’ll always have the option of paying the lower payment.