A housing rescue bill aimed at helping distressed homeowners recently passed a test vote in the Senate. 60 votes were needed to close the debate on the bill and it received 83. However, problems still loom with the president threatening a veto over certain sticking points. In particular, the White House is opposed to giving $4 billion dollars to states to purchase properties that have been foreclosed upon. President Bush sees this as a way to help out the banks that financed these risky loans and not the borrowers who have been hurt by predatory lending practices.

The bill would affect the FHA by allowing it to back $300 million worth of loans for approximately 400,000 who would not normally meet the FHA standards. Opponents of this part of the plan argue that this lowering of the FHA’s already relatively lenient standards will only lead to more foreclosures in the future and could potentially result in the demise of the FHA. Proponents argue that, at the current time, this is the best solution for the hundreds of thousands of homeowners in trouble.

Because of the Congress’s Fourth of July recess (July 1^st – 10^th) progress on the bill is unlikely until mid- to late-July.

Below is a continuation of our focus on traditional refinancing options for consumers. Please be advised that new legislation has caught steam in Congress that would put open up an ability to refinance through new initiatives with FHA loans to millions of Americans.

Fixed Rate Mortgage—Borrowers who are preparing to permanently stay in their home often choose a fixed rate mortgage to refinance. The most popular terms are 30-year or 15-year fixed. Borrowers who like stability and no surprises tend to go for fixed rates because the rates are steady.

One drawback, however, is that mortgage payments will go up if borrowers refinance an existing loan for a shorter term. On the other hand, borrowers will ultimately end up paying more principle and less interest, which means that the equity of the home starts to add up.

Adjustable Rate Mortgages, or ARMs—In this option, the interest rate of the mortgage adjusts over a period of time, eventually resulting in a higher mortgage monthly payment. An ARM is a great refinancing option for borrowers that foresee an increase in income, if the fixed rate is too high, or for those planning on living in their home for a short period of time.

The interest rates for ARMs are usually lower than those carrying a fixed rate. Some choose ARMs because they usually do not have to pay prepayment penalties if they choose to refinance in the future. However, some struggle with their ARMs if interest rates drive their mortgage rates to significantly increase in a short time period.

• Split Premium Insurance—In this option, the borrower purchases a portion of the insurance by either paying out of pocket or financing, and then pays a smaller amount on the monthly premium. Some find this option attractive because it offers flexibility for the homebuyer and the lender.  Mortgage payments may even be lower because the premium can be paid by a third party or at closing.  Borrowers may also benefit from a split premium tax write-off.

• Standard annual premium—This option requires that a certain amount be paid at closing, usually the total cost of the first year of insurance.  Some borrowers like the standard annual premium because they get the insurance cost out of the way in the first year, and the renewal in the second year and beyond often leads to lower monthly payments.  Some companies offer tax benefits for choosing this plan as well.

More thoughts

Remember, mortgage insurance is designed to get buyers into homes faster by avoiding a large down payment.  Keep in mind the following when you’re choosing a certain type of mortgage insurance:

• The home loan amount
• Estimated monthly payments
• Local housing trends

With careful consideration of your personal circumstance, along with the benefits and disadvantages of each type, you can choose the mortgage insurance that is right for your home.