Recently, I saw a news story about the skyrocketing number of home foreclosures in the U.S. California was at the top of the list -- not surprisingly. And where there's a spike in foreclosures, there's usually a spike in mortgage refinancing as well. That's why California home loan mortgage refinancing is such a hot topic.
California Mortgage Refinancing - Contributing Factors
We have already stated that the rise in home foreclosures (and the conditions that lead to foreclosures) are partly what drives California home mortgage refinancing rates. But what leads to these foreclosures? What puts so many people in the situation where they have to refinance their home mortgages to stay afloat? In a word -- adjustables. Sure, many factors contribute to the total volume of California home loan mortgage refinancing. But adjustable rate mortgages (ARMs) probably contribute more than any other factor.
Refinancing Adjustable Rate Mortgages
Here's a basic scenario that explains how adjustable rate mortgage can often drive the need to refinance a mortgage -- or worse, can lead to a foreclosure situation. John and Sally Smith move to San Diego, California for Sally's new job. They immediately begin house hunting and pricing out mortgage loans. But as you know, California real estate can be expensive, especially in San Diego.
John and Sally find a home they want to buy, but the mortgage is a little beyond their current budget. But John plans to find a job in San Diego as well, and they both expect pay increases in time. So they choose an adjustable rate mortgage (ARM) in order to get lower interest rates on the mortgage. The ARM has a fixed rate during the first three years, then it adjusts to whatever the prevailing interest rate is at the time of adjustment (after three years).
Everything is fine for the first few years. The mortgage payments are a bit steep for the Smiths, but they can manage. John and Sally are both working, so they're able to make ends meet. But then they reach the end of their fixed-rate period. How time flies! And their mortgage loan is about to adjust to the prevailing interest rates at that time -- and those interest rates are much higher than what the Smiths were used to under their introductory rate!
What do they do? Well, they can try to brave the new financial waters, like some homeowners do. But if they can't make their mortgage payments, they will go into foreclosure. So instead, they try to refinance their mortgage to a lower fixed-rate mortgage spread over 30 years or so. This is the basic definition of mortgage refinance -- you are replacing and old mortgage loan with a new one, ideally to lower your interest rates. Now, the Smiths are another statistic of California home loan mortgage refinancing.
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