The declining housing market, cited as a root cause of the economic downturn by some experts, or given as a first-line indicator of recession by others, has lost value for the first time in generations. Long seen as the one true “safe” investment, homes simply aren’t worth what they were two years ago in many areas of the country. Builders and contractors have quit putting up new houses and people are planning to ride out the recession in their current digs.
For many looking to find money where they can, the mortgage is the place where they can turn to find some wiggle room. One by-product of the recession is low mortgage rates. Even people with the most mediocre of credit scores have found that there are financing programs available to them. Even dropping one percentage point can save the homeowner significantly on their monthly payments.
Some have found it advantageous to use equity in their home to pay off other debt, such as high interest credit cards and car loans. For those fortunate enough to have it available, they can see significant monthly savings.
Here’s one example:
Husband and wife own a business, which the husband ran while the wife had another job. The business was forced to close and the husband stayed home with their school-age children for a year to save daycare expenses. They barely scraped by, but were beginning to lose ground. They had $150 a month credit card payment, a car payment of $250 and a home equity loan at $100, a mortgage payment of $850, plus the normal monthly expenses. Their debt payment was $1350 a month.
By squeezing equity out of their home, and rolling the debt into the mortgage, they were able to realize savings of $380 a month. The mortgage payment is now $970 and the smaller payments are gone. They were fortunate to have the equity available.
With a decent, not excellent, credit score, the possibility of refinancing and saving some money is available to many families. Those with excellent credit scores can see rates under 5%, which can offer significant saving potential. The money saved can allow families to ride out this depression without a significant drop in standard of living. The money saved can also go to home improvements, getting the house ready to sell when the housing market improves.
