Government Refinancing Home Loans

Judging by the prevailing interest rates in the market, one can see that it has been reaching historic lows. The combination of economic conditions and the Federal Reserve keeping the interest rates at bay has allowed lenders to loan money at very attractive rates. However due to the sudden 180 degree turn in the real estate boom, people who have been faithfully paying their mortgages suddenly find themselves in difficult situations. They must now look at the option of government refinancing home loans.

Since now they owe more than the value of their home, banks usually will no longer refinance the loan as it is not advantageous to lend somebody for an asset that is worth less. A government refinancing home loan program was introduced during the Obama administration called Financial Stability Act.

The Financial Stability Plan is basically the government refinancing loans. It was created to help stabilize an otherwise volatile real estate market. An aspect of the plan is to allow people to refinance their home, thus making lower mortgage payments. With lower payments, people can hopefully save more money on a monthly basis. This additional savings can be applied to the principal of the loan or can go toward payment of other debts such as credit cards, college loans, or just simply savings for future use.

It is important to note that before the government refinances home loans, one must be current on mortgage payments. This means that one must not be a delinquent when it comes to payments. There are incidences where people would intentionally miss mortgage payments and then apply for a loan modification. The problem here is that the bank may disapprove of the modification, and since there has been delinquent payments, the credit score of borrower naturally takes a hit, making it harder for them to qualify for loans. To qualify for the government refinancing home loan program, they must be current on their mortgage and must continue to make payments as scheduled as they go through the refinancing process.

There are other stipulations that are required for the government to refinance home loans. The value of the first mortgage cannot exceed 125% of the value of the first mortgage. The loan must be a Fannie Mae or Freddie Mac loan. The home must be considered a 1 to 4 unit property.

The idea of government refinancing home loans basically comes down to mathematical common sense. If they pay less interest and pay more on the principal amount, it will pair down the debt drastically and allow them financial freedom down the road.