Many of you know that I am not a fan of debt. Along with Dave Ramsey, I believe there is no good or bad debt, just debt. For many, in a decade of mediocre returns in the stock market, their home (often an investment safe haven) has become an investment inferno. This stems from bad refinancing decisions, like putting short term unsecured credit card debt into long term mortgages secured by their biggest investment: their home.
At the peak of the housing boom I remember going to a mortgage broker seminar where the mortgage broker told all the financial advisors to have their clients refinance into interest-only, variable rate mortgages so that they could invest their extra money with the financial advisors. “Nobody pays off their homes anymore”, he said.
Now many houses are under water. This means they owe more than their house is worth. The worst part is that they are at risk of losing their largest investment as their adjustable rate mortgages are about to reset to much higher rates. What can you do? Bob Klosterman of White Oaks Wealth Advisors Inc. does a good job of answering this in his blog What To Do With An Upside Down Mortgage. Here’s a summary:
1. Determine if you qualify for refinance under the Obama Administration’s comprehensive Financial Stability Plan. How do you do this? Go to www.makinghomeaffordable.gov, and take their “Find Out If You Are Eligible?” quiz. If eligible, you could refinance or modify your current loan.
2. Determine if you qualify for the FHA Secure and Hope for Homeowners (4H4) program. Check out their website for details at www.fhasecure.gov.
3. Negotiate with your lender.
What type of mortgage should you attempt to secure if elegible? Fixed rate mortgages are becoming more and more popular. If you’d like to become debt free, read my previous blog post Mortgage Habits of Millionaires.
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