Home refinancing by the government

By examining the prevailing interest rates in the market, it is apparent that its one of the historic lows that the market has experienced. Because o...


By examining the prevailing interest rates in the market, it is apparent that its one of the historic lows that the market has experienced. Because of the prevailing economic conditions plus Federal Reserve keeping the interest rates at bay these has given lenders the chance to lend money at very good rates. However, because of the unexpected 180 degree turn in the real estate boom, people who used to pay diligently their mortgages suddenly find themselves in a hot situation. They must now look at the option of government refinancing home loans.

Since now they owe more than the value of their home, banks usually will no longer refinance the loan as it is not advantageous to lend somebody for an asset that is worth less. A government refinancing home loan program was introduced during the Obama administration called Financial Stability Act.

The Financial Stability Plan is basically the government refinancing loans. It was created to help stabilize an otherwise volatile real estate market. A part of the plan is to give people a chance to refinance their home, thus making lower mortgage payments. With reduced payments, people can become more financially stable by saving more money on a monthly basis. This additional savings can be used for the principal of the loan or can be used for payment of other debts such as credit cards, college loans, or simply savings for future use.

It must be kept in mind that before the government refinances home loans, mortgage payments must be updated. In short, one must have a good track of credit rating. There are situations where people would deliberately miss out mortgage payments and then apply for a loan modification. The problem here is that the bank may disapprove of the modification, and since there has been delinquent payments, the credit score of borrower naturally takes a hit, making it harder for them to qualify for loans. To be accepted for the government refinancing home loan program, applicants must be current on their mortgage and persistently make payments as scheduled as they go through the refinancing process.

There are other terms that are required for the government in order to refinance home loans. The first mortgage’s value must not exceed 125% of the value of the previous mortgage. The loan must be a Fannie Mae or Freddie Mac loan. The home classification falls within the 1 to 4 unit property.

The government refinancing home loans in principle is a fundamental and sensible mathematical common sense. If they pay less interest and pay more on the principal amount, it will pair down the debt drastically and allow them financial freedom down the road.

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