what is the benefit of a 1% mortgage payment for a year term ??
by Mortgage Rates on Friday, November 12th, 2010 | 5 Comments
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What will the rate go to after 1 year?
Have you tried selling the house?
What is the worst that could happen. It sounds like you are ready to foreclose right now. At least this buys you a year. I think it sounds like a great idea. If the terms are not tolerable next year then foreclose. Maybe next year they’ll offer you another 1 yr ARM @ 1%.
You will lose approximately 3.5% of your house value per year that you make the minimum payment on the home. Possibly more depending on what interest rate you have the actual interest calculated at – this is assuming that you have a house that is not in a market that is losing value as well.
The question you have to ask yourself is can you make the payment a year from now. If not, you’ll be right back in the same spot you’re in now, but at least you’ll be able to stay in the home for another year. During that time you can list the home for sale and see if you can unload it that way. The lender may be more willing to accept a short sale situation than a deed in leiu as they won’t be forced to sell the property and keep cash tied up while they’re holding your home.
I am sorry for your situation and hope the best for you. Feel free to contact me directly if I can help any more in this situation – the lender will likely offer you a better offer in refinancing than any other lender at this point as they already have you on the books and refinancing with lower income right now is incredibly tough, if not impossible.
You are wise to ask about the possibility of Neg Am. I would check with the bank. They are probably awash in people that are having issues with their mortgages, which is why they are not all that excited about taking a deed in lieu right now, even if you have equity.
Remember, that 1) You COULD indeed generate Neg Am during the 1% over the year–check the fine print on the offer that they give you; and 2) What will the rate be after the “teaser” year expires?? Can you make that payment? Or will you be in the same situation a year from now?
I don’t know what state you are in, but I work for a company that can do loans in 44 states. If you like, perhaps I could see what we could do for you. If your bank is going to offer you a loan for one year, at 1%, with NO neg am, and you are going to try to sell the house in the mean time, that is probably not a bad idea. If you want to keep it, you may want to look in to other options.
Best of luck!
Clarification: There is no such thing as a 1% rate. There is, however, a loan program that allows you to make a minimum payment that is based on a 1% interest rate.
In laymen’s terms, “1%” is just how the lender determines what your minimum payment will be. It has nothing to do with the true interest rate of your loan. This means that if you pay the minimum payment only, the balance on your mortgage will increase.
This can be beneficial as long as you understand that your mortgage balance will be increasing every month. Ask the lender how much you will accrue in deferred interest (deferred interest = minimum payment – interest accrued). Sometimes that number can be shocking. The benefit is that it increases your monthly cash flow by minimizing your mortgage obligation. The bad news is you’re killing your equity.
You might consider selling the house using the profit as a down payment on a more affordable home. Another option would be to find a roommate to pay some of that mortgage.