How to Solve the Foreclosure Crisis
An important step in solving the foreclosure crisis is to provide assistance to mortgagees in making the monthly loan payments; this assistance should be in place before the first loan payment is due.
One solution in providing assistance, which would not require any additional governmental funds to be spent, would be a mandatory mortgage equity accelerator program for every new loan written. A mortgage equity enhancement program allows a thirty year mortgage loan to be repaid in approximately twenty-five years. The total monthly payment is not decreased, but mortgagees have two equal automatic withdrawals made from their bank accounts on established dates. These two withdrawals are combined to make the monthly loan payment.
Normal vs Biweekly Payments with Equity Accelerator
Here's an example of how it works on house that lists for $1 million courtesy of PayMap.
The house lists for:
List Price $1,000,000
30 year fix rate loan of 6%
10% or $100,000 down payment
1. Normal Monthly Payment = $5,688.61 vs. two automatic payments of $2,844.31 each month. Simplified Budgeting and total payment has not changed.
2. Normally payoff loan in 30 years, but do it in 24 years, 4 months instead.
3. Your equity in 10 years normally is $137,014, but with an equity accelerator program it's $212,519.
4. Total Interest Savings with equity accelerator is $255,523.
Some lenders are willing to divide the monthly loan payment into four withdrawals, essentially making weekly banking account withdrawals. Here is my personal story of how an equity enhancement program works for a thirty-year fixed mortgage. The FHA loan for my home is $184,900.00, thirty year fixed rate of 5.25%. The monthly p...
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... Avg. Lowest Est. Month Payment for a $300,000 loan**principal & interest only
Source: Informa Research Services, Inc.
30-yr Fixed 4.76% 4.13% $1,454.82 / month
15-yr Fixed 4.26% 3.75% $2,181.67 / month
30-yr Fixed Jumbo 5.64% 4.50% $1,520.06 / month
15-yr Fixed Jumbo 5.16% 3.88% $2,201.07 / month
1 yr. ARM 4.02% 2.55% $1,193.18 / month
3/1 ARM 4.07% 2.88% $1,245.48 / month
5/1 ARM 3.75% 3.00% $1,264.81 / month
Solutions to the foreclosure crisis need to be found and implemented through the institutions and providers responsible for finalizing mortgage loans. Continuing to cast the blame solely on the banking institutions for the industry’s role of providing funds on now defunct mortgage loans has not lead to constructive resolution of the crisis. We cannot allow the American dream of home ownership to become another piece of national nostalgia.
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