How will the government's mortgage refinance prevent foreclosure?
It appears that the worst is over but the "hangover" of the subprime mortgage crisis has not died down completely.
An increasing number of homeowners are still facing foreclosure and are likely to "walk away" from their homes.
To counteract the situation, the government has introduced several mortgage bailout plans in a row, mortgage refinance being one of them, but they failed to address the needs of all the homeowners in dismay.
The Making Home Affordable Plan aims at helping homeowners that are facing foreclosure. However, not all homeowners qualify for this help, and there are a few requirements that need to be fulfilled if you plan to opt for mortgage refinancing. Given below are the prerequisites of availing Obama's Making Home Affordable Plan that can bail you out if you are facing foreclosure.
What are the prerequisites for availing the Make Home Affordable Plan?
- The total amount you owe to your lender should not exceed USD$729,500.
- The house you intend to refinance should be your primary place of residence.
- You qualify for 4% mortgage refinance if you have been regular with your mortgage payments over the last year. In case you missed mortgage payments over the last 12 months, you can have your mortgage modified instead of refinanced.
- You can opt for mortgage refinance if the amount you owe is at least 5% higher than the value of your home.
- Your monthly mortgage payments should not exceed 31% of your gross monthly income.
Just as mortgage refinance can help you to stop foreclosure, mortgage modification is another option that can help you to prevent foreclosure. However, you have to give documentary evidence that you are facing financial hardship.
There are many advantages if you opt for mortgage refinance.
Some of the benefits are as follows —
- The most important benefit of opting for mortgage refinance is that your monthly mortgage payments become much lower. This is because you get to enjoy lower interest rates that automatically lower the amount you shell out each month.
- If you have enough equity in your home, you can opt for cash-out refinancing that will give you access to some extra cash that can help you to make payments for your other financial obligations.
- You can shorten the term of your loan. Let's say the loan term you have opted for is 20 years but you want to pay off your mortgage earlier... you can reduce the term of your loan.
- You can switch over to a more favorable interest rate. For instance, if you have been making payments as per fixed-rate mortgage (FRM) and the prevailing mortgage rate in the market is low, mortgage refinance will enable you to enjoy a lower mortgage rate as a result of refinancing.