With so many lenders offering mortgage options, it is always advisable to compare your options and then decide on the right lender. Unfortunately not many do this. They go with the first mortgage lender who gets in touch with them directly by purchasing mortgage leads from lead generating firms. As a result, most borrowers get stuck with bad mortgages.
Getting stuck with bad mortgage usually means paying up a higher interest rate than what you are supposed to. The terms may not be too favorable for borrowers, which make it difficult to afford the monthly payments. This is when you need to think of alternatives. Here are a few options that will help you convert your bad mortgage into a good one:
Convert from Adjustable-rate mortgage to fixed rate mortgage
In case you are stuck with a bad mortgage only because you chose a variable rate mortgage at the first place, all that you would need to do is convert it into a fixed rate mortgage. Most of the adjustable rate mortgages come with a provision that will give you the right to convert it into a Fixed rate mortgage. In case this provision is not there in your agreement you may have to go for a mortgage refinance and make sure you choose one which offers you a fixed interest rate.
Extending the mortgage term
If you are finding it difficult to pay up your monthly mortgage payments because of a higher interest rate, you can always contact your lender and ask him to extend the term of your mortgage. This will reduce your monthly mortgage payment, making it much more affordable. Again, if your existing mortgage lender does not agree for such an arrangement your only option would be to get in touch with a mortgage refinancer who is ready to lend you money at much more favorable terms.
Apply for a Second Mortgage
If you have not yet started paying up your monthly mortgage payments on your first mortgage this could be a good option. It will work for you if your home value is more than what you actually owe against your first mortgage. You can go for a second mortgage, use the money to make a bigger down payment and ask your mortgage lender to lower your monthly payment amount. For instance, if you are purchasing a home for $200,000 and your first mortgage is for $150,000, you can take a second mortgage for $50,000, pay up the money as an additional down payment and get your interest rate lowered.
Go for a Home Equity Loan
A home equity loan is given by the bank against your home equity as collateral. Your home value should be more than your mortgage amount if you want to apply for this. This is like a line of credit out of which you can keep withdrawing from as and when you have to pay up your monthly mortgage payments. The interest rate would be much lower than what you would pay for your credit card. Home equity loan is a revolving debt that comes with no fixed payment term. After paying it back you can draw out money again and use it to pay up your bills or meet any other emergency requirements. One thing you need to know here is that most home equity loans come with variable rates of interest. They will change according to the market conditions.
Refinance your Mortgage
In this option you can get a whole new mortgage at a new interest rate, with new terms. You can do your homework before deciding on the lender, so that you are sure you are getting a great deal this time. You have two options when you want to refinance your existing mortgage – HARP and Cash-out refinancing. If you have no or very low equity on your home, HARP is what you need to choose and if you have adequate equity on your home, you can take advantage of cash-out refinancing. Here is an explanation of both these options:
- HARP or the Home Affordable Refinance program: You would be eligible for this program if you have not been late in making your monthly payments for at least six months now. This is a special program introduced by the government to help those who have less or no equity on their homes to take advantage of low interest rates as well as the other benefits of refinancing. This option does not necessitate an appraisal, which makes it easy for you to save time and money. Not only does it make your monthly payments more affordable, this program will also help you build equity on your home within a short span of time.
- Cash-out refinancing:In this mortgage refinance option, you get to borrow more money than what you owe. So, you can essentially pay up your existing mortgage and still be left with some money that you can use, either to pay off your other debts or to make home improvements if any. For instance, if you owe about $80,000 on your first mortgage and your home equity is $150,000, you can go for a cash-out refinance for $100,000. By doing so, you get a new mortgage for $80,000 at a better rate and you can get a $20,000 check that you can spend as per your wish. You may have to however pay up the closing costs when you go for a mortgage refinance.
You can find quite a few options if you want to get out of your bad mortgage. However, it is very important toshortlist a few lenders, compare their terms and choose the best one if you don’t want to get into a bad deal again. So try and refrain from saying yes to the first mortgage lender who gets in touch with you through mortgage leads. Always do your research before making your decision. After all a home is not something you would buy every now and then.
