Selasa, 22 September 2009

Mortgage and Our Economy: What It Means For You

by: Rachel Jackson

The economy is in the midst of the worst slump for generations, and we are beginning to rethink our financial structures and the way that we handle money. One thing that has not changed much, however, is the fact that we need a place to call home, and it is still a worthwhile investment to own one.

In fact, now may be the best time to buy a home, with prices lower than they have been in many years and mortgage companies desperate to find buyers with good credit and a down payment to their names. For anyone who has been renting, saving, and building their credit up over the last few years, the time is ripe to look into a new home purchase.

Fallout from the Economic Downfall

In addition to the tricks of investments that seemingly create money out of nothing, the economic trouble was spurred on by the explosion of the bloated housing market. Mortgage companies would issue mortgages to people whose income would not support those loans in the long term. These loans were designed to start out with incredibly low, often interest only payments, which eventually would blossom into much larger payments. The idea was that the home buyer would refinance before the terms of the loan changed, but this was not often possible for the buyers in reality.

Some mortgage companies went even beyond this particular practice to blatantly illegal activities, falsifying income proof and other documents on “behalf” of buyers in order to get them into more and more expensive homes. These loans were highly dangerous, but the mortgage companies had a plan for that, too, bundling the rotten mortgages into groups and selling them off as investment opportunities that were touted, falsely, as low risk.

As buyers slowly came upon the end of the fixed rates on their loans or to the end of their interest only payments and were unable to refinance, a trickle of home owners began to foreclose. When this trickle became a flash flood of foreclosures, the real estate market and the economy that it was propping up began to tumble down.

What that means for you

As the economy started to falter, the house prices all across the country dropped dramatically, which means that almost anyone not caught up in a disadvantageous loan has the chance to participate in the economic recovery by buying a house. At first mortgage companies closed the doors tight to new loans unless they were extremely secure, but they are beginning to open up again to reasonable loads for home buyers.

With a good credit score, and a decent down payment, it is now a perfect time to take advantage of the rise of the housing market from the dead and buy a foreclosed or empty property, sometimes for less than half the price it was selling for a few scant years ago. Over time these properties will slowly recover their value, and in a decade or so you may have doubled your investment.

Things to watch out for

It goes without saying that you do not want to be one of the unfortunates in the next potential round of foreclosures, so there are some things that you should watch out for when you are getting a loan. Beware, for example, of mortgage companies that try to talk you into taking a mortgage that you are worried about being able to afford.

It is also important to take on a load with a fixed rate that will be affordable to you in the foreseeable future until the loan is paid off (and consider a term life insurance policy to help your loved ones pay off the house should something happen to you before it is done.) Think twice or more about any loan that is temporarily fixed, as payments can jump quite a bit when the fixed rate term is up, and do not ever sign the papers for a mortgage which you can only afford by refinancing in a few years unless you have fully considered the repercussions of being unable to get a new loan when the terms change.

There is a lot to consider when buying a house, and considering can lead you to wait longer than is advisable before you make your move. The time is right to go home shopping in this new economy, and what that means to you is the potential for security and a wonderful investment in your future.

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