Many people may have heard that the Chinese expression for “crisis” consists of two characters, “challenge” and “opportunity.” The expression could also describe the dual nature of the current housing market downturn - peril and potential.
Whether you are taking advantage of current prices to buy a house or trying to cope with a difficult financial situation to keep your home, it is important to understand how a mortgage works and what to do if you start to encounter payment problems.
According to an HSBC-North America consumer survey, one out of three people don’t even know if they currently have a fixed rate mortgage or adjustable rate mortgage. Moreover, three out of ten consumers surveyed have no idea of what types of fees are associated with their mortgage loan. Loretta Abrams, senior vice president of HSBC’s Consumer Affairs, says improving mortgage know-how will help consumers protect their investment
Before you obtain a mortgage or a mortgage refinance
loan, make sure you understand the following:
* What types of mortgages are you considering? Is it a fixed rate mortgage or adjustable rate mortgage (ARM)? What are the advantages and disadvantages to your personal situation?
* What’s the interest rate and how much are the fees associated with the mortgage loan? Costs such as points and processing fees can be an added two to ten percent of the loan. You don’t want to be surprised by an extra $2,000 or $10,000 in fees when you close your loan;
* As a general rule, you should spend no more than 28 percent of your gross monthly income on housing expenses. Besides the mortgage, remember to include taxes, insurance and other related expenses;
* If you have an adjustable rate mortgage (ARM) loan, make sure you know when the payment can change, by how much, and what the maximum payment can be. Check into options like mortgage refinancing before your adjustable mortgage resets.
* Do you have money to cover costs if your roof suddenly leaks or your furnace goes out? Set aside an emergency fund (three percent of your home value) for maintenance and other unexpected costs.
If you have payment problems or you’re just having trouble keeping up with your mortgage payments, remember it’s never appropriate to “do nothing.” No one – neither you nor your lender – wants you to lose your home. The earlier you take action, the more options you may have.
Take the following steps:
* Contact your lender at the first sign of trouble. Respond to all your lender’s communications, describing your circumstances;
* If you prefer to speak first to a trusted third party about your options, call Homeowner’s HOPE™ Hotline, 888-995-HOPE. You can also dial 1-800-569-4287 or visit www.HUD.gov for a HUD approved counselor
* Take advantage of free resources on YourMoneyCounts.com, available in both Spanish and English, to find information that will help you manage your finances.
