How Can I Avoid Being Trapped in a Bad Mortgage?

A survey of loan officers at Mortgage News Daily found that the single biggest reason for borrowers being unable to refinance was "insufficient equity." In fact over 90% of lenders surveyed gave this reason as the biggest detriment to refinancing. It didn't matter how low the rates were; people couldn't take advantage of them. Worsening credit accounted for most of the remaining 10% of respondents.

Hone Affordable Refinancing Plan Can Help

Those who have been making their mortgage payments but can't refinance because of falling home values are getting some help from the government. If your mortgage is held by Fannie Mae or Freddie Mac, you may be eligible for a refinance into a lower rate even if you have little or no equity. In fact, your refinanced loan can be for up to 105% of the current appraised value of your home. Check HERE to see if you're eligible for a refinance.

The Tough Economy and the Difficulties of Refinancing

Many who took out subprime or payment option loans planned to refinance when their credit scores or finances improved. Unfortunately, falling home values and a tough economy pulled that rug right out from under them. A new program, the Home Affordable Modification program, allows those eligible to have their loans modified to more affordable plans--by getting lower rates, longer terms, and sometimes reduced balances. Check here at financialstability.gov to see if you are eligible for help.

Stay Cautious to Avoid Getting Trapped in an Unaffordable Loan

HUD advises potential homeowners and home buyers to learn from the mistakes of others and avoid borrowing beyond their means. While rescue is available to those who got their loans before January 1, 2009, consider yourself warned--there will be no help for those who take a loan today that proves unaffordable.

Mortgage calculators can show you what constitutes an affordable payment for someone with your income. Run some numbers, take some time to improve your credit standing and save up some emergency funds. A larger down payment also lessens the chance that you will find yourself with too little equity to refinance when you want to.