As Short sale listing agents...we encounter a variety of scenarios that have gotten homeowners to "the point of no return"...or more accurately, the point of no equity....and an inability to continue making mortgage payments. The death of a spouse, un or under employment, divorce, serious illness....and often, a combination of circumstances.
The downturn in interest rates has lead many homeowners to consider the option of refinancing. A lower mortgage payment is certainly an attractive incentive. Some people have taken the savings on the lower rate, and applied the additional funds to the principal to reduce their mortgage debt more quickly. Others have used the money for educational funds, retirement plans, other savings accounts or to reduce other debt. Then just as this savings was used wisely....it was, in equity days gone by, used unwisely. The re-fi "cash out" or "debt on" enabled homeowners to add the expense of the car, boat, vacation, consolidated credit cards, etc. Now that the housing market has declined, the homeowner is upside down with, having re-financed multiple times and add to that....a job less or income reduction...and that four letter word that initially appeared to mean HELP has really turned to HURT.
It's too late for some homeowners to realize a benefit rather than a burden from the once magic four letter word: Re-fi ...more debt has been incurred with less income to pay it. Practical money management is not part of any school curriculum...but to our minds, should be added at an elementary school level and continued through high school.
We are not lenders...or financial counselors. We are Realtors who encounter homeowners overcome with debt having made choices that appeared at the time to be a good financial option. ....one payment, lower interest.
As the waves of re-financing splash across the economic landscape...consider the best use of the savings...Live wisely, save well...and live happily ever after.
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