This prediction seems validated with the announcement last week by the Mortgage Bankers Association report that delinquency rates for mortgage loans are up again in the third quarter. 

So, what is a person to do.  Well, first of all, be very aware of the various loan options and why they are structured the way they are.  If you have bruised credit, consider holding off on the purchase and repairing the damage so that you don’t have to settle for subprime lending options that set you up to become one of the statistics.  Some will argue that renting while trying to repair credit is the equivalent of throwing money down the drain.  But really, if you accept a bad mortgage situation and ultimately end up losing your home — is it really any better? 

Specifically Bies noted that there was too many instances of lenders combining nontraditional loans (remember the interest only loans I mentioned a week or so ago?!?) and utilizing a “risk layering” practice that put the borrower at risk if the interest rates rose. 

For the borrowers like you and I, it is very important to remember that the more sluggish the housing market is, the more we are at risk.  As the market continues to sink buyers can expect higher risks in the long run and a tougher time obtaining financing in the near future.  This is truly a time when the term “Let the buyer beware” is applicable. 

In 2006, however, the rates are adjusted slightly and the market starts to slow down and interest rates start to move upward.  So now, here it is year 2007 and the question always is asked — what can we expect this year? 

Well, it is my belief we can expect that the changes we saw in 2006 will continue throughout much of 2007.  Things are going to stay at the slightly moving upward rates — at least for now.  Which means that those people we may think were extremely lucky to get the near nothing interest rates may not be so lucky after all.  After all, they are literally trapped in a situation where there are no real refinancing options available to them without tacking on a substantial amount to their loan due to the higher interest rates.  (Maybe my stalling was really a good thing — probably not — but it is a comforting thought to think while I watch the interest rates crawl skyward).  On the other hand, as the market continues creep up, the activity continues to slow down and/or remain sluggish.  This will eventually cause alarm and the Federal Reserve Bank will have to do something.  Playing with(and in particularly lowering) the interest rates in our economy is akin to a doctor using electric paddles on a failing heart.  It tends to restart things and gets them going back to normal.  Well, at least as normal as the financial world can be. 

The same things apply to interest only loans today.  Because there is not a way to promote equity in them, and because when the actual mortgage+interest payments begin, they are often way too high to afford; interest only mortgages are not for the average home buyer.  Sure, they serve a purpose in investment situations where a property will not (hopefully) be held for more than 5 years.  But if you are looking for loan options that allow you to gain equity and still have an affordable payment, stay away from the interest only loan product.  It simply is not for you.

A good rule of thumb for the origination fee is about 1.2-1.6%.  Closing costs will generally be in the range of 3-4%.  While these costs could be influenced by the location of the property, anything outside these windows should be considered suspect and investigated throroughly. 

The short version of the concept it this – lenders are in the lending business to make money.  Don’t simply assume they are giving you the best deal to get your business — because, truthfully, they may not be.  Competition, at least in this case, can be a very healthy thing for your bottom line.  Don’t hesitate to ask questions and if you don’t get the answers you need or want, pick up your paperwork and move on to the next lender.  Someone will recognize what you are seeking and give give you the service you deserve.  

So, is there another reason to consider a home-equity loan? 

Some financial and tax advisors would say yes.  Did you realize that any interest you pay on the first $100,000 of a home equity loan is tax deductible?  It is — and this is the good part — it is tax deductibe regardless of how you might have spent the money!  This figure can go up to $1,000,000 if the money you borrow is to put home improvements in place or buy an additional home.

Now, where else can you get full credit off of your taxable income (up to the limits that apply, of course), and still put money in your pocket?  Exactly.  If used right, a home-equity loan can be a slick tax trick — but don’t just take my word for it, talk your own own tax-advisor to get a more comprehensive explanation of the facts.