Survive the Real Estate Bubble Burst
With a basic understanding of how the bond market works, and interest rates effect your bottom line, the answer is clear. The American economic situation is swaying back to center, after many capitalized on extremely low lending rates. The Federal Reserve Chairman, Alan Greenspan has committed to the strategy of raising the interest rates in “measured” quarter point increases. Why did this not translate into action for new home buyers? It should.
Many new home owners purchased a home with a highly leveraged loan, using Adjustable Rate Mortgages, Interest Only Loans, in order to buy a house that would otherwise come with a hefty monthly payment. These people are at the most risk of suffering when it comes to the real estate bubble problems. This non-traditional financing led many to purchase homes that will not be able to survive the payment adjustments from future rate increases.
If this sounds familiar, then it’s time to do some financial planning in order to fix the situation.
1) If you have an adjustable rate mortgage, call your loan broker and have him calculate what your exact payment would be, if you switch to a 30-Year fixed traditional loan. If he gives you a figure that you could never afford, you should think about selling your house, because that may be lower than what your payment will be in a year with your current loan.
2) If you are renting, and thinking about buying, then make sure that you pay off credit cards, high interest loans, and save for a down payment of 20%.
3) If you already have a 30-Year fixed rate mortgage, then try to keep your house for the next 5 years, when it’s equity will eclipse or provide a great return again.
In general, if you own a home, and are allowed to pay on the interest quicker than what the loan terms have your payments measured to be, you will make more money, by paying less interest over the course of the loan, and generating more equity.
