| How to Avoid Foreclosure
All across the country, people who stretched their finances to buy the biggest house possible, assuming they could refinance or sell if they ran into trouble, are running out of options as interest rates rise and housing prices stagnate. When you miss a mortgage payment, it's only natural to ignore the late notices and stop answering the phone. But that's the worst thing you can do. By avoiding the problem, you risk not only losing your home but also irreparably damaging your credit. The fact is, lenders don't want to repossess your house -- it's expensive and time-consuming. Most will do anything possible to avoid it, since they're unlikely to make a profit when they turn around and sell it. The rising number of bad mortgages only makes lenders that much more willing to try to work out a loan.
Part 1: What do those terms mean?
Are you getting ready to buy a new home or refinance your existing home? When you meet with your lender or speak with a real estate agent, you'll find they have specific terms or words they use. To avoid any confusion, if you don't understand what they are talking about, ask them. Here are some of the most frequently used terms and words you are likely to hear during this process. Adjustable-rate mortgage (ARM): A mortgage with an interest rate that changes periodically according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that of fixed-rate mortgages, but monthly payments can increase or decrease when the rate is adjusted. .
What’s the best option for financing your automobile?
If you're financing the purchase of a car with the equity in your home, that is exactly what you could be doing — paying for a car over 10 or even 30 years.The use of home equity loans, lines of credit and cash-out refinancing to purchase an automobile grew in the last decade as interest rates dropped and property values soared.It also has become popular as lenders hyped the fact that interest on a home loan is tax-deductible, unlike on a vehicle loan.In 2006, about 24 percent of homeowners used a home equity line of credit to purchase a car or truck, according to Synergistics Research Corp., a financial services consumer market research company based in Atlanta, Ga. About 8 percent of homeowners took out a second mortgage specifically to buy a vehicle, says William H. McCracken, chief executive of Synergistics.But is buying a car or paying off your remaining auto loan balance with the borrowed equity from your home a good financial move?“I issue a note of caution on this," says Don Taylor, a columnist for Bankrate.com and an associate professor of finance at The American College in Bryn Mawr, Pa.“If you don't have the discipline to do more than the minimum payments on these loans, then this is not a good idea."The assumption people make is that the home equity loan is cheaper than a traditional car loan because of the mortgage interest tax break.However, if you don't make extra payments or pay the loan off early, you end up paying more in interest over the life of that loan than you would with an auto loan, erasing any savings on your taxes.Plus, because the car money is rolled up in a home mortgage, you could still be paying on a loan for a vehicle you've long since sold or traded in.I asked Taylor to run a few financing scenarios to compare the total cost of four types of auto borrowing: a 60-month car loan, a 10-year home equity loan, a 10-year home equity line of credit and a 30-year cash-out mortgage refinance.To view the full results or to plug in your own loan figures, income tax rate and interest rates, go to www.bankrate.com/compare.So let's look at one example of an auto loan versus a home equity loan in which you finance $30,000.
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