Obama Extols Impact of Lower Mortgage Loan Rates

President Obama touted his administration's efforts to lower mortgage interest rates in a round-table discussion yesterday with Washington-area homeowners who have benefited from refinancing into more affordable loans

The discussion in the White House's Roosevelt Room included Gail Johnson, a registered nurse from the District who discovered in June that the payments for her adjustable-rate mortgage were about to increase dramatically. She saved $400 a month after refinancing.
It also included Woodbridge couple Pedro and Luz Cruz, who reduced their payments by $700 a month in February. That was enough to compensate for a cutback in Pedro Cruz's work hours.
Cruz said he had used up most of his savings to keep up with his mortgage payments before receiving a prized 4.75 percent interest rate and extending the terms of his loan to 20 years from 15 years. Without refinancing, Cruz said in an interview, he feared he would behind in his payments and possibly lose his home.

"The main message we want to send today is, is that the programs that have been put in place can help responsible folks who have been making their payments, who are not looking for a handout," Obama said, "but this allows them to make some changes that will leave money in their pockets and leave them more secure in their homes."
Obama pointed to a boom in refinancing that has accompanied lower mortgage rates, which were at an average 4.87 percent for a 30-year, fixed-rate loan this week, according to a survey by Freddie Mac. Refinancing applications have risen 88 percent since February, according to the Mortgage Bankers Association. And Fannie Mae has said that its refinancing volume jumped to $77 billion in March, twice the level of the previous month.
Obama's round table also included Jeffrey and Shelby Haggray, who refinanced the mortgage and home-equity line on their District home in January. Their monthly payments had risen by hundreds of dollars a month over time and became unaffordable, Jeffrey Haggray said. The new mortgage lowered their payments and helped extinguish several debts including a car loan, lowering their household expenses by about $1,200 a month. "Over the course of the 30 years, it will save us thousands of dollars annually," he said.
He said the new loan has an adjustable interest rate, which is at about 6 percent now, so the couple is likely to refinance again. "We're already anticipating refinancing in the future to secure an even better rate," he said.
Despite the uptick in refinancing, the president's housing program, launched last month, has yet to have a significant impact. Additionally, homeowners with jumbo mortgages -- loans higher than $729,750 in the Washington area and $417,000 in most of the rest of the country -- still struggle to take advantage of lower rates.
The program Obama launched last month allows borrowers with little or no equity to refinance as long as their mortgage is backed by Fannie Mae and Freddie Mac. Lenders began delivering refinanced loans under that program to Freddie Mac on April 1, and Fannie Mae received several thousand applications on Monday when its computer systems were updated for the program. But not all banks have implemented the program.
It is taking even longer for some lenders to launch the foreclosure-prevention part of Obama's housing program. Under that program, the government will pay lenders to reduce payments to affordable levels for troubled homeowners.
The administration is finalizing agreements with lenders and is still working on the details of the part of the effort that will deal with borrowers who have two loans.
"We are in the process of rolling out some additional phases to the program," Obama said.

Home Equity Loan

home equity loan is a fixed-rate loan with a fixed payment schedule based on the available equity in your home. You receive your loan money all at once and then pay it back in predictable, fixed monthly payments.
Rates on home equity loans run a few percentage points higher than a home equity line of credit (HELOC), but you have the added security knowing the rate and payment will always stay the same.
Home equity loans are usually tied to the Prime Rate published in The Wall Street Journal. The prime rate is also used to set credit card rates and auto loans.
At this writing the prime rate is 3.25 percent, which is down from 5.25 percent last year. Rates have been going down this past year because the economy is in a recession. Lower home equity loan rates are good news for home owners looking to tap into their equity.
Popular uses for home equity loans include:
Debt consolidation - Paying off higher interest credit card debt. Most credit card rates are in the double digits, whereas home equity loan rates are in the single digits as of April 8th, 2009.
Auto loan - Rates on home equity loans usually run lower than auto loans.
Home remodeling - Tapping into your home equity is a good source of funds for updating or adding an addition onto your home.
Another added benefit of a home equity loan is you can take a tax deduction for some or all of the interest you pay on the loan. Before you get a home equity loan consult your tax advisor to find out what the tax deductions might be for you.

Home Loan Education

Many say your home is the wisest investment you'll make. Historically, it's an asset you can count on during difficult times, and it's something you can pass on to your family.
Your home is a financial tool; you build equity as you pay your loan and as the value increases in favorable market conditions. Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year. Home values nearly double every 10 years, according to historical data from the National Association of Realtors.1
Unlock Your Home's Equity With Wells Fargo Financial
Refinancing your home loan can help you free up your budget by taking advantage of the equity you've built. For many homeowners, it's a great way to restructure high-interest bills and thereby reduce your current monthly payments.
You could free up extra money each month to spend however you’d like. Or, you may choose to get cash back to pay for your immediate financing needs. With home loans and home equity lines of credit, the interest you pay may be tax deductible.2
What Is A Mortgage Loan?
A mortgage is a document that gives a lender an interest in real property. It provides the lender assurances that you’ll honor your promise to repay the money you’ve borrowed. Your promise to repay is found in the written instrument known as the note. Together, a mortgage and note are often simply referred to as a mortgage loan.
Mortgage loans come in many different shapes and sizes, all with their own advantages and disadvantages. It is important to learn about all the mortgage loan options available, so you can select the one that’s right for you, your financial situation and your personal goals.
Wells Fargo Financial offers two types of mortgage loans you can choose from when you’re ready to refinance.
Fixed-Rate Mortgage Loans
Fixed-rate mortgages offer predictable monthly payments throughout the life of the loan and give protection from rising interest rates. They work well for those with a fixed or slowly-increasing income and have a lower tolerance for financial risk. Fixed-rate mortgages are generally well-suited for borrowers who plan to stay in their home for a longer period of time. Fixed-rate mortgages are often considered more conservative and can give you the security of knowing your monthly principal and interest payment will not change over the life of your loan.
Adjustable-Rate Mortgage (ARM) Loans
ARMs have adjustable interest rate and payments; however, they remain the same for the first three years. The interest rate and payments could adjust every six months thereafter based on market conditions. ARMs may be more appropriate for borrowers who may want to sell or refinance early, can make larger monthly payments after the rate adjusts or are looking to buy a home when interest rates are relatively high.

loan

loan is a type of debt. This article focuses exclusively on monetary loans, although, in practice, any material object might be lent. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.
The borrower initially does receive an amount of money from the lender, which he has to pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A loan is of the annuity type if the amount paid periodically (for paying off and interest together) is fixed.
A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.
Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.
Legally, a loan is a contractual promise between two parties where one party, the creditor, agrees to provide a sum of money to a debtor, who promises to return the money to the creditor either in one lump sum or in parts over a fixed period in time. This agreement may include providing additional payments of rental charges on the funds advanced to the debtor for the time the funds are in the hands of the debtor (interest)

Types of loans

Secured
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.
A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.
In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.
A type of loan especially used in limited partnership agreements is the recourse note.
A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk.[citation needed]
A pre-settlement loan is a non-recourse debt, this is when a monetary loan is given based on the merit and awardable amount in a lawsuit case. Only certain types of lawsuit cases are eligible for a pre-settlement loan.[citation needed] This is considered a secured non-recourse debt due to the fact if the case reaches a verdict in favor of the defendant the loan is forgiven.

[edit] Unsecured
Unsecured loans are monetary loans that are not secured against the borrower's assets. These may be available from financial institutions under many different guises or marketing packages:
credit card debt
personal loans
bank overdrafts
credit facilities or lines of credit
corporate bonds
The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.

[edit] Abuses in lending
Predatory lending is one form of abuse in the granting of loans. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her. Where the moneylender is not authorised, it could be considered a loan shark.
Usury is a different form of abuse, where the lender charges excessive interest. In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates. Credit card companies in some countries have been accused by consumer organisations of lending at usurious interest rates and making money out of frivolous "extra charges".
Abuses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.

United States taxes
Most of the basic rules governing how loans are handled for tax purposes in the United States are uncodified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations — another set of rules that interpret the Internal Revenue Code).Yet such rules are universally accepted.
1. A loan is not gross income to the borrower.Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth.
2. The lender may not deduct the amount of the loan. The rationale here is that one asset (the cash) has been converted into a different asset (a promise of repayment). Deductions are not typically available when an outlay serves to create a new or different asset.
3. The amount paid to satisfy the loan obligation is not deductible by the borrower.
4. Repayment of the loan is not gross income to the lender. In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender.
5. Interest paid to the lender is included in the lender’s gross income.Interest paid represents compensation for the use of the lender’s money or property and thus represents profit or an accession to wealth to the lender. Interest income can be attributed to lenders even if the lender doesn’t charge a minimum amount of interest.
6. Interest paid to the lender may be deductible by the borrower. In general, interest paid in connection with the borrower’s business activity is deductible, while interest paid on personal loans are not deductible. The major exception here is interest paid on a home mortgage.

Income from discharge of indebtedness
Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists “Income from Discharge of Indebtedness” in Section 62(a)(12) as a source of gross income.
Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y $50,000. For purposes of calculating income, this should be treated the same way as if Y gave X $50,000.
For a more detailed description of the “discharge of indebtedness”, look at Section 108 (Cancellation of Debt (COD) Income) of the Internal Revenue Code.