Why Rising Interest Rates Make Modifying Your Loan Critical Now
I’ll try not to be too detailed and go beyond interest rate 101, but there are distinctive cycles to our economy and we are about to encounter the start of an upward cycle in interest rates, to include mortgage rates.
Right now mortgage lenders have access to low cost money from the Feds and are anxious to lend it out. For those facing hardships and applying for personal loan modifications it means it’s easier for your bank to take your rate down and lower your payment as they have access to low interest money’ BUT NOT FOR LONG.
When this changes it will be harder for them to bring down your rate if it’s what they’re currently paying for money at that time. If your rate today is 7.5% and current rates are around 5% it makes it pretty easy for your bank to keep you out of foreclosure by modifying your loan and keeping you in the house making payments.
But if they’re cost of money goes to 7.5% which is likely then they could take huge losses considering how many modifications could and should be made by banks. This could lower their motivation to help with lowering your rate.
Many reading this have loans that will reset this year and those new rates could be even higher than the borrower thought. Fortunately the cap is usually 2% per year but still if you can’t afford your payment now another 2% will only make it worse.
The banks facing borrowing at higher rates could mean their attitude about modifications could change. The problem with that though is that if they don’t accommodate their borrower’s hardship needs they will have a growing foreclosure dilemma on their hands.
For many a modification just isn’t realistic as their income has been too badly depleted. Luckily due to the tremendous increase in foreclosures and short sales people in this predicament have alternatives available now that weren’t there even a year ago. Legal remedies lenders aren’t anxious to share.
If you own a home and have built some equity in it, one solution to the unsecured debt problem is to refinance your home loan and at the same time take out a second mortgage in order to pay off the credit cards, thus eliminating the unsecured debt. This is the type of information that you will want to share with your potential clients, and in doing so you will have a great opportunity to tell them all about the money-saving mortgage and debt consolidation products that you have to offer.
THE PERFECT STORM
So here is the perfect storm; rates go up making it harder to get a modification, home sales will go down as low rates go away. So first time homebuyers and investors will back away causing sales to drop and supply to grow thus meaning home values will probably go down even more than in the past.
Foreclosures will rise and home prices will probably continue to drop in many overbuilt communities. Today over 32% of all house are underwater with value compared to loan amount and many people are having a hard time understanding why they are still paying high interest on equity that is gone maybe for 20 years!
In conclusion right now, today, couldn’t be a better time to apply for a loan modification and obtain the best rate available maybe for years to come.