Taking An Interest In Foreclosure

 Although the real estate market has returned to being robust and healthy pretty much everywhere in the United States, and the vast majority of people can count on their house selling after only a short period of time spent on the market, there are some states whose residents are facing record numbers of foreclosures.

Ohio, Georgia, Texas, and Florida are in the midst of an economic crisis as a direct result of the decline of the manufacturing sector in their respective states, which has led to an increased reliance on the service sector, which offers fewer employment opportunities at lower wages. The benefits for these positions in the service sector are not even close to being as excellent as the benefits for employees in the previous industrial industry, and in other situations, they do not exist at all.

The states in the mid-Atlantic region have been seeing a steady decline in the number of manufacturing jobs and enterprises for many decades, which has resulted in widespread instances of house foreclosures and decreased property values.

However, foreclosure could have been avoided in many of these cases if the homeowners had not been the victims of less than reputable lending plans and firms. These lending plans and firms provided homeowners with ill-advised financing options, such as interest-only loans, which left the borrowers with little home equity when they needed to refinance or secure a second loan to save their home from foreclosure.

They were left with little or no equity as a result of the interest only loans, which meant that they did not have any security for the loan. As a direct consequence of this, the banks foreclosed on their houses.

A mortgage loan referred to be interest only is one in which the borrower is only required to make monthly payments equal to the total amount of interest that has been collected on the loan up to that point.

This interest only feature is only active for the first five to ten years of the loan, and while borrowers have the ability to overpay at any time, their overpayment is only applied to future interest payments and does not contribute toward paying down the main balance of the loan.

This indicates that the borrower does not make any payments toward the principal of the loan during the years in which the interest-only option is in effect for the loan. If you have a mortgage for $100,000 in the year 2000 and choose to pay solely the interest for the next ten years, your debt will still be $100,000 in the year 2010.

Should the borrower run into problems making these payments and discover that the possibility of foreclosure is looming over their head, there is a significant possibility that they may lose their home to foreclosure. Let's say, for the sake of argument, that the valuation of the home on the market in 2010 was 120,000.

Due to the fact that absolutely none of the 100,000 that had been borrowed had been repaid, the equity in the residence would only amount to 20,000. If, on the other hand, the borrower's monthly mortgage payment included a contribution of $200 toward the principle throughout that 10-year term, the borrower would wind up with an additional $24,000 at the conclusion of the loan.

Actually, the equity would be substantially higher since the interest on the amount would reduce together with the principle as it was paid down, and the same payment would pay more of the principal and less of the interest as the main was paid down. If the borrower were to get ill, lose their spouse, lose their job, or experience any other kind of financial difficulty that caused payments to be late or skipped, this increased equity may prevent the house from going into foreclosure.

The rule of thumb is that interest-only loans should not be considered unless you know for a certainty that your earning ability will significantly grow during the next five to ten months and that your outstanding obligations will reduce.

If this is the case, the possibility of paying a smaller sum today but a larger sum in the future is reduced. You won't be in danger of having your home foreclosed on.