They bought their home with 10% down payment back in 2007 using two mortgages which only required interest only payments for the first 10 years. They opted for this route because they wanted to buy this home before their other property sold (buying simultaneous)…the other property never sold and is now a rental. This morning I received an email asking:
"Please advise how the stimulus package can help me. I would like to lower my monthly mortgage payments and not have interest only loans."
March 4, 2009 is when we are suppose to have the details on how President Obama's plan will work. From The White House Blog:
I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.
Will refinancing lower my payments?
The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan….
I am not an appraiser…when I look at what's recently sold in this homeowner's neighborhood, it looks like home values are down roughly 15% from when they bought two years ago. Appraised values are based on what other homes in your neighborhood have sold for in the past few months. Since they put 10% down two years ago with interest only products, they are underwater on their mortgages.
The first and second mortgage combined are around the 105% loan to value…but it sounds like this will be up to who ever the mortgage servicers are for both the first and second mortgages and if the new program will be limited to true conforming limits of $417,000 or if it will include those areas that qualify for the conforming high balance limits ($506,000 for King, Pierce and Snohomish counties). At least they have a 8 years remaining on the interest only period of the mortgage.
There are still more questions than answers at this stage. This homeowner's investment property will not be included in this plan.
I'm hopeful that the new plan to be revealed in early March will help this family. At this point, they cannot refinance without it.