Avoiding Foreclosure

Making your mortgage payments on time is the best way to avoid foreclosure.  Job loss or health problems can put you in a bad spot financially, and one of the worst case economic disasters for anyone is a foreclosure.  If you are unable to make payments, contact your lender and see if you can renegotiate your loan to something more manageable.  Freddy Mac recently stated that 50% of homeowners who went into foreclosure had never contacted their lender to discuss renegotiation.  They would usually rather have something as apposed to nothing.  You may also consider refinancing with a completely new lender.  Bankruptcy is usually not a good option in dealing with a foreclosure.

Foreclosure

I decided I should take some time to discuss the dreaded foreclosure.  A lender may foreclose on your home if you fail to meet certain conditions associated with your loan, typically non-payment.  The house may then be sold, and the money gained from the sale goes towards the outstanding balance.  In some jurisdictions, the home owner is still responsible for any outstanding debts, and in some they are not.  Check your local legislation to find out which category your location falls under.  In some areas, foreclosure and sale can occur rather rapidly; while in in others it can take months and in some convoluted cases even years.

Types Of Home Loans

It is very important to understand the terms and conditions of each kind of loan, so that you can choose one that best suits your needs.

• Fixed Rate:  Includes a specific loan repayment amount.  This type of loan protects you from any interest rate rises.
• Variable Rate:  Gives you the flexibility of being able to make extra payments if you wish.
• Introductory Rate:  Generally, for the first 12 months your interest rates are discounted.  
• Bridging Loan:  This loan helps you purchase a home if you are currently in the process of selling your current home, but have not yet finalized the transaction.
• Interest Only Loan:  In this type of loan, you are only making monthly payments on the interest.
• Principal & Interest Loan:  You will be paying off the interest and actual principal owed on a monthly basis.

Reverse Mortgages

A reverse mortgage is a special kind of loan insured by the government that converts your equity into cash.  Unlike a traditional mortgage where the homeowner is making payments to the lender, the lender makes payments to you.  You can choose to receive monthly payments or a lump sum, or even a combination of the two.  You are not forced to repay this loan until you sell your house or die.  These loans can be expensive and should be used only as a last resort.

Requirments:

• Must be at least 62 years of age
• Must have a good amount of equity in your home
• Must be the primary resident

Positives:

• No income requirement
• Minimal credit requirements
• Fast cash

Negatives:

• Loans are very expensive, can cost you up to 10% of the value of your home in fees
• Unable to pass home to heirs
• You are still responsible for property taxes and maintenance