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Clock ticking for low interest rate time bomb

UK Council of Mortgage Lenders (CML) say repossessions have shrunk by 25% year on year. However mortgage largue that mass repossessions are a disaster waiting to happen.

According to statistics released from the CML today, the number of repossessions was 9,800, down from 10,600 in the previous quarter and 13,200 in the first quarter of 2009. Also there was a reported reduction in the overall arrears numbers.

However, mortgage experts fear that low interest rates may be masking a future problem and artificially making mortgages more affordable for beleaguered borrowers.

During the boom times many mortgages were granted from specialist lenders with cheap fixed rates for a limited period to borrowers with a poor credit history or were self employed. The rates after the fixed period were very high, although recently they have been forced down by low interest rates.

Experts argue that these kinds of mortgages are now a ticking time bomb as when normal market conditions resume these mortgages will double in interest rate overnight, in many cases to over 10% interest rates.

Mortgage Expert, Chris Gardner, of UK mortgage and property website Obligo.co.uk said “these types of deals are at rates today that are much lower than they would be under normal market conditions. Borrowers have found themselves with mortgages that are artificially affordable. When rates begin to raise the effect will be disastrous”

Obligo.co.uk calculates that the average £150,000 interest only mortgage for these types of mortgage will increase £625 per month to over £1250 per month.

Gardner went on “Clearly when rates rise back to pre-recession levels these borrowers will struggle to pay and many will get into arrears, and sadly then on to repossession. The problem is compounded by the fact that these self same borrowers cannot remortgage to cheaper deals with other lenders – the lending rules are now so tight for these kinds of borrowers that they now effectively mortgage prisoners – trapped in high rate loans they cannot afford”

Consumers who find themselves in trouble with a mortgage are urged to try renegotiate the terms with their existing lender if possible. In some instances lenders may reduce penalties and exit charges and in some cases have reportedly even paid borrowers to go elsewhere. If direct action with your mortgage lender fails find a reputatable broker and see what can be done. According to Obligo, even in the current market there are lenders who will listen if the loan to value and circumstances are right.

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May 17, 2010 Posted by | Finance, Mortgage | , , , , , , , , , , , , | Leave a comment

What You can Squeeze out of the Best of Equity Release Plans

The equity buried in one’s home is the net value of the property. This can be calculated by deducting the previous loans and debt secured against the property with its current market value. The equity release plans allow one to convert the equities into cash flow without selling the property or moving out of it.
The equity release plans work the best for the elderly persons. The retired persons want to live their remaining lives with the utmost ease and without facing any financial hazards. After experiencing so many ups and downs in the professional arena, they now wish to live happily till the end of their lives. A strong feel of monetary security assures the smooth sailing during the last phase of the life. But in reality, many a retired personnel gets trifling amount as pension that can hardly cover the monthly expenses. Instead of enjoying the retired life to the fullest, they have to sink into the deep thought over how to manage their day-to-day expenses. If these cash-starving persons own properties they can adopt the equity release plans to give a good run to the rest of their lives.
The equity release plan or life time mortgage policy hands over a part of the value of the residence in exchange for the proceeds that can be earned once the proprietor takes his or her last breath. The equity release plans provide the needy person the required cash flow that can be used for a myriad of purposes besides supplementing the scanty monthly income. One can utilize the proceeds to buy a car, plan a holiday trip or simply to help the children or grandchildren in meeting their needs.
Thrashing out the worst equity release plans to take the best pick is the toughest task the old persons face very often. The requirement of every individual is in great variance with the other. So what works the best for one is the worst plan for the other person. Therefore, the interested persons should approach an expert to guide them to choose the best equity release deal.
The equity release plans can be narrowly classified into two categories—one that yields a lump sum amount and the other that secures the monthly flow of income. The mix and match policies are also available to satiate the needs of a certain section of the borrowers. The value of the property and the age of the borrowers are the two main criteria in the equity release plans. The older a person is, the greater is the amount to be squeezed out of the equities. The best equity release plan must provide the guarantee of negative equity feature which refers to a fall in the debt in the event of any decrease in the property value

May 16, 2010 Posted by | Finance, Mortgage | , , , , , | Leave a comment