Finance

Interest Rates: Home Equity Lines of Credit No Longer Simple

Rate

Not long ago economists were recommending that homeowners should tap their equity to buy stocks. This is not a very good practice because if you risked your house before the dotcom crash you may have lost your home. For most everyone our home is our biggest cash reserve. It is like piggy bank and dipping into made financial sense when interest rates were at historic lows and home values were appreciating at double digit rates. This appreciation refilled the piggy bank. Now the market is soft and interest rates are up. With that being said is there any reason to dip into home equity?

Home equity lines of credit or HELOC is no longer cheap money. Rates may drop this year but recently the interest rate on this type of loan has been going up. At the avg. rate of 8.7% the interest only monthly payment on a $100,000 dollar HELOC loan is $725 vs. $387 when rates hit their lowest point almost 3 years ago.

 

You may end up owing more than you own. Lenders have made it possible for you to borrow 100% of your homes value. For example, during the housing boom home buyers that were stretching to afford a home financed the down payment with a HELOC. If you do this today and prices fall, your home loan could add up to more than what your home is worth. What happens if you have to sell for some reason? For starters you will have to pay a realtor 6% unless you are one yourself or a FSBO (for sale by owner). Then you will have to pay the difference out of pocket.

 

During the housing boom, homeowners financed luxurious upgrades with HELOC loans. Borrowers were confident that the run-up in their home’s value would outstrip the cost of upgrades. Now that appreciation has returned to normal or single digit appreciation you may not recoup everything you put into your home. You’re paying nearly 9% to make an investment that is not a sure thing.

 

Even though these facts are present you may want to tap your equity for the right reasons. It is simple to do and interest on any loan that is as much as $100,000 is tax deductible. If you are during renovations on a home you plan on staying in for a while or indefinitely then a HELOC loan is good. If you want to costs of high interest credit cards then again a HELOC isn’t bad.

 

Don’t be pressured by a lender or mortgage broker who says that waiting to take out a loan or line of credit will hinder you from borrowing as much.

 

Be a smart shopper. You can eliminate rate worries by locking in a fixed rate. Rates on old fashioned home equity loans are lower than what HELOC rates are today; 8.1% on average.

If you prefer the flexibility of a HELOC then take advantage of all competition among lenders. If you get HELOC payments debited from your checking account then this can lower payments by lowering the interest rate by half to a full percentage point.

 

References:

bankrate.com

First Person: The Pros and Cons of ‘Strategic Foreclosure’

Strategy

*Note: This was written by a Yahoo! contributor. Do you have a real estate story that you’d like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

“Strategic foreclosure” is a term you’re likely to hear a lot about in the coming months. If reports are true that housing prices will continue to fall throughout the year, chances are homeowners will elect to walk away from their underwater mortgage even if they have enough money to pay loan installments.

 

Strategic foreclosure has been a hot topic of conversation within the real estate networks I participate in. It’s a controversial subject and responsible for plenty of forum flame wars. Some investors feel it is a brilliant financial strategy. Others think it is financial suicide, immoral, and unethical.

 

Until recently, strategic default has been used primarily by homeowners and investors with stellar credit who are fully capable of paying their mortgage. Instead of continuing to pay on real estate that is no longer worth the paper it’s written on they choose to stop making payments and force the bank to provide options. Banks aren’t willing to work with homeowners who can afford their payments. You can’t just call up the bank and say, “Hey, my house is worth $50,000 less than I owe you. Will you write that off and reduce my payments?” Instead, you have to stop paying before the bank will negotiate.

 

Many of the real estate investors I know are using this strategy to force banks into short sales, deed in lieu of foreclosure, or mortgage principal reduction. This can be a risky proposition, so those who elect to go down this path need to hope for the best and prepare for the worst.

 

While it may seem logical to voluntarily default on an underwater mortgage, take time to calculate the true costs. If it works and the bank offers a foreclosure prevention strategy that either allows you to short sale, return it using deed in lieu, or reduce the principal balance it might be a smart move. However, if the bank calls your bluff and commences with foreclosure it will tarnish your credit for quite some time. Anyone who has engaged in credit repair will tell you it’s a painfully slow process to boost FICO scores. Not only will you be unable to buy a house for at least a few years, you’ll pay through the nose when you do qualify for credit.

 

Lenders assess interest rates based on credit scores. The lower the score, the higher the interest. FICO scores can plummet by 100 points or more once foreclosure is reported to credit bureaus. Chances are insurance premiums will rise. Interest rates on credit cards will go up and credit limits reduced. It might be challenging to find a landlord willing to rent unless you pay first, last, and security deposit.

 

Subprime lending is a major player in the foreclosure fiasco, so banks have tightened lending criteria. In fact, a mortgage standards reform proposal is in the works that will make qualifying for a home loan even more difficult in the near future. While reduced FICO scores might not seem like an overwhelming challenge, they can become a mountain if your mortgage lender holds you responsible for monetary deficiencies. Most banks require homeowners to pay the difference between their loan balance and sale price. If you owe $200,000 and the house sells at auction for $170,000 you might be holding the bag for thirty grand.

 

When banks issue deficiency judgments they can take action to collect the debt. Usually this in the form of garnished wages. At minimum, the judgment remains on credit reports for up to 10 years after the debt is paid. Judgments can reduce credit scores that won’t rebound until removed.

 

A final consideration of strategic default is that of morals. Even when it makes perfect sense to go forward, most homeowners feel an ethical obligation to make good on their promise. They understood when they bought the property it carried risk. So, they are willing to ride it out and hope the market eventually turns around.

 

Only you can decide if strategic foreclosure is in your best interest. It may provide the mortgage relief required, but not without financial consequences. If you can afford the payments, you’ll have to search your moral database to decide if you can walk away guilt-free.

 

More from this contributor:

Is the Las Vegas Real Estate Market the Greatest Sin of All?

Improper Foreclosure Could Cripple Major Banks

ForeclosureGate: The Fed Investigates Wrongful Foreclosure

 

How to Reach Chinese Investors in Canada & United States?

Chinese

Chinese speaking investors are the fastest growing investor communities in Canada  amp; United States. Increasing number of companies such as fund managers, real estate companies and mining companies are interested in reaching these communities.

 

You can observe this by looking at how many financial services companies are adding a Chinese language website as a way to attract customers. This ranges from HSBC, Scotiabank, Royal Bank of Canada to organizations like Toronto Stock Exchange and Nasdaq.

 

How do you reach Chinese investors in these markets?

 

Newspapers ‘” The main challenge for newspapers is duration. Advertisements can only last for a very short period of time, but advertorials can sometimes generate good level of interest on particular products.

 

Banners ‘” It may work sometimes, but usually only have limited exposure period, it is good for branding, but may not be the best way to promote certain investment opportunities.

 

Google Ad word ‘” Google Adword did not work well in the Chinese market, but in the English market.

 

Articles Marketing ‘” This is definitely the most active web marketing technique, we send out regular company updates, articles and this has generated significant number of responses; you can reach Chinese investors by posting on various Chinese language websites and forums based in North America.

 

Blogs ‘” This is also very cost-effective, I now write daily or at least weekly diaries ‘” and publish them on Chinese website, this has generated consistent traffic ‘” you may not get instant hits, but it will build up loyal subscribers over time. If you combine with Blog marketing, you can post articles on related financial blogs, and add comments on financial blogs. We had implemented this for some mutual funds and IPOs, and it has increased their traffic by more than 10 times in some cases.

 

Videos and Audios ‘” These are also very effective ways especially if you are conducting webinars or specific courses like investment strategies. One way to maximize this tool is to upload them on popular Chinese language news websites. You should also produce videos  amp; audios in Chinese language instead of having them in English.

Gulf Homes for Sale – Reasons Why You Should Invest in Gulf Real Estate

Gulf

There are a lot of gulf homes for sale that are good real estate investment because of their locations and affordability taking into account of the region’s overall geographical resources, sceneries, and commercial prosperity.

Being the ninth largest body of water in the world, the Gulf of Mexico has abundant natural resources. The wide array of natural resources includes fisheries, minerals, and ecological habitats. Specifically, fisheries such as shrimps and oysters account for half of the U.S.’s fisheries products. Mineral resources such as petroleum in the Gulf produce a quarter of the U.S. domestic natural gas and one-eighth of its oil. Lastly, ecological habitats like coastal wetlands, submerged vegetation, important upland areas, and marine/offshore areas have great commercial values to the region.

 

The Gulf region is famous for its beautiful sceneries. Florida beaches are one of the hottest spot for vacationing or local recreations. The spectacular beauties and first-class facilities and services are the best features of Florida beaches that have drawn million of people there monthly. Mississippi river is another beautiful spot in the Gulf Region where people can visit Jefferson National Expansion Memorial, and national historical parks like Natchez National Historical Park, and New Orleans Jazz National Historical Park. Down to the more southern part of the Gulf region, one can visit the El Cielo and other attractions in Mexico. Even more south, you can also enjoy Cuban beaches such as Varadero Beach, the Eastern Havana Beaches (Playas del Este) which are also famous for its sunshine and great facilities.

 

In addition, geographically, the Gulf of Mexico is surrounded by Gulf Coast states of the United State such as Florida, Alabama, Mississippi, Louisiana, Texas; regions from Mexico such as Tamaulipas, Veracruz, Tabasco, Campeche, Yucatan; and also the inland of Cuba. Because of its unique geography, the Gulf region definitely has tremendous commercial potentiality. Tourism is one of the most important commerce in the region. The beautiful beaches and shores are popular spots for tourists and local alike that generates billion in revenues for local businesses.

 

Ports and shipping industries, on the other hand, are also commercially important in the Gulf region. The entire region is approximately 600,000 square miles which is measured of about 995 miles from east to west, 560 miles from north to south. Specifically, the area from Cape Sable, Florida, to the Yucatan peninsula is more than 3,540 miles, with another 236 miles of shore on the northwest tip of Cuba. And the total shoreline will be more than 16,000 miles in the U.S. if bays and other inland waters are also counted. Seven out of top ten sea ports in the U.S. are located in the Gulf of Mexico. For instance, the Port of South Louisiana in New Orleans and the Port of Houston are two of world’s busiest sea ports.

 

Residential real estates in the Gulf region offer you varieties of styles from villa to townhouse. And investing in Gulf homes is a wise choice not only because of the region’s rich resources, and commercial values, but also because of the many beautiful sceneries and mild weather.