Refinance Assistance for Low Income Families
Refinancing assistance replaces current loan obligations with other loan contracts. Through refinancing, you pay off the entire existing loan with the application of the proceeds from the newly opened loan. Advantages to refinancing include lowering monthly payments and reducing interest expenses for the term of the loan. Assistance for financially struggling families with low incomes allows some lenders to help these struggling families with refinancing or loan restructuring.
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Types
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Available refinancing options include fixed rate mortgage refinance; adjustable rate mortgage (ARM) refinance and government refinancing loans. Under fixed-rate mortgages, the interest rate remains the same for the entire term of the refinanced loan. This proves to be a popular option since it is straightforward and shields mortgagors from payment changes due to sporadic fluctuation of interest rates. Conversely, ARM refinancing offers low-interest rates for initial payment periods. Later, the interest rate levels to a fully indexed rate, which could increase monthly payments if rates go up.
Significance
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The federal government structures refinancing loans to accommodate low-income households through the Federal Housing Administration (FHA) and Veteran’s Administration (VA) loans. These loans offer lower interest rates and longer payment terms. The enactment of the Financial Stability Act of 2009 created the Making Home Affordable Program which allows the refinancing of home loans in mortgage backed securities through Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). This program assists qualified homeowners with refinancing to capitalize the prevailing low interest rates despite diminishing property values. The program further provides incentives to lenders to restructure mortgages to more affordable levels.
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Options
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You can avail yourself of one of two components of the Making Home Affordable Program. HARP, the home affordable refinance program component helps homeowners, whose loans are held by Fannie Mae or Freddie Mac, in refinancing their mortgages notwithstanding incurring a debt more than their home’s current value. According to Fannie Mae, it provides relief to borrowers through reduction of their monthly principal and interest payments or moving them from a more risky loan structure, such as ARM, to a more stable one, such as fixed-rate mortgage. The other component, HAMP, home affordable modification program, provides affordable mortgage payments for struggling homeowners with either increased interest rate or less income.
Considerations
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Individuals belonging to the low-income bracket may seek refinancing assistance for many reasons. If you are at risk of a default or foreclosure in your current mortgage or an adjustable rate mortgage set-up is increasing your mortgage payments to more than you can afford, you can investigate these refinancing options. These options may also be beneficial if your income is below average in the area in which you reside. Also, the Financial Stability Act of 2009 stipulates that if your mortgage payments consume at least 31 percent of your total income, you are eligible for these refinancing options.
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References
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