Spending and Saving

Dealing with Debt: Mortgages

In this economy, things change fast. One day you have job, the next you don’t. Companies fold within days. Investments evaporate.

In a recent story about how to handle a layoff, we suggested that you take a look at your finances—particularly what you owe—so that you can start planning. But that actually holds true for everyone these days.

Most of us have some sort of debt. And even if you have a job, the bonus you normally rely on to pay off credit card bills has probably shrunk or vanished. Freelancers and consultants still have student loan obligations, even as their gigs are being cut. Many people are taking salary reductions, but continue to carry mortgages. And just how secure is your job, anyway?

Meanwhile, as credit markets shift at lightning speed, it’s not easy to find up-to-date information. So we’re doing it for you, compiling the most current advice on managing debt, starting with mortgages.

Whether you’re in panic mode or proactive mode, the first thing you should do is assess the situation. I can add my debt up easily, because I just have a fixed-rate mortgage and a student loan with low payments. For more complicated situations, try Motley Fool’s debt worksheets.

Get on the phone now if you’re facing financial crisis. Historically, lenders would only modify loans after you’d fallen behind in payments, but these days they’re eager to help homeowners avoid foreclosure. And many of the big banks have created special programs to assist people. (Kiplinger)

The stimulus package could provide some relief, but you shouldn’t wait—if you’re underwater with your home, call your lender so when federal dollars start flowing, you’re already “on the list.” (Newsweek)

With interest rates still low, refinancing sounds like a good option—though it’s not as easy as it was a couple of years ago. If you have a fixed-rate loan higher than around 6% or an adjustable-rate loan about to reset, it could be a smart move, but be sure to do the math. (Kiplinger)

Timing counts with refinancing, because it helps you get the best rate. “The sooner the better,” says Dale Vermillion, author of Navigating the Mortgage Mess: The Simple Truth about Refinancing Your Home. (FOXBusiness)

The Federal Housing Administration’s FHASecure program is helping some homeowners refinance from adjustable-rate loans into FHA-insured mortgages. (FHA)

Tags: mortgages, personal finance, real estate, Spending and Saving, The Unemployed Life