Dark Clouds on Financial Horizon for Southsiders;

Why are South Side Chicago Homeowners in Serious Financial Trouble?

The South Side Homeowners are in for a shock. If they don’t prepare now, there could be a lot of financial hardship ahead. Right now South Siders are facing four major financial challenges that need to be addressed immediately.

1- Real Estate Taxes are skyrocketing. Chicago assessments have just been released and in some areas there have been up to a 90% increase. That means that some homeowners, depending on their situation, could see tax bills that are nearly double in 2007. Payments could increase several hundred dollars per month if they escrow. If they don’t, homeowners may have to come out of pocket with thousands more. On average, the South Side is going to see a 32.5% increase. Check out the Sun Times article released on Tuesday 7/4/06 that highlights the problem http://www.suntimes.com/output/news/cst-nws-tax04.html.

2- Adjustable rate mortgages are due to increase. Many of the South Side homeowners have adjustable rate loans. These loans taken out during the refi boom during 2003 and 2005 enhanced cash flow with their lower start rates. But, according to a study done by www.Moodyseconomy.com, more than $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, come up for interest-rate resets in 2006 and 2007. Many of these loans could adjust upwards up to 2%, with possible future hikes in coming months depending on what index mortgage notes are tied to. A 2% rate hike on a $175,000 loan that started at 6% could result in $234.87 per month payment increase. Homeowners will feel the stretch. The startling report predicted one out of eight households with adjustable rate mortgages that originated in 2004 and 2005 will default on those loans.

3- Rising energy costs have eaten away savings. Much of the cash flow gained from taking out adjustable rate loans has been absorbed by continuously rising gas prices. Now more than ever, homeowners are feeling the squeeze. If energy costs continue to rise as we head into the winter months, heating bills could put many homeowners in a bind.

4- House Bill 4050 could throw a wrench in refinance process. Although designed to protect them, no one knows for sure how the official implementation of the bill beginning in September will affect homeowners. Many claim the required reviews of new mortgage loans and mandatory counseling for certain borrowers could slow the process  and cause problems for homeowners looking to make changes. Time is of the essence and if they get behind during the process their life lines could be cut.

How You Can Weather the Storm

Contact your mortgage advisor. Especially if you have an Adjustable Rate Mortgage that is due for a reset, you could be in store for significant payment increases within the next year. Working with a knowledgeable, professional  loan officer who is focused on putting you in the right program can help you refinance into a loan program that helps you accomplish your financial goals and minimize your risk in a volatile market. With the right guidance you can significantly increase your cash flow, fix your payment, and gain access to your equity. Separating the equity from your home and creating a liquid cash reserve can give you a cushion to fall back on if you hit hard financial times. Plus, there is an opportunity to earn an interest income from this reserve that can offset the cost of borrowing. For more information on how the right mortgage can help protect you from the pitfalls of today’s market and improve your ability to cover the rising cost of energy and other expenses, contact my office or the office of another professional mortgage consultant.

Reduce your Debt. Carrying big credit card balances and HELOC’s will really begin to weigh you down financially as interest rates begin to rise. Economists, including National Association of Realtors Chief Economist David Lareah, predict interest rates will steadily climb well into 2007. By reducing your debt, you’ll reduce your monthly payment requirement and drastically improve your cash flow. You’ll be able to secure your future by stashing away a bit of extra cash for those hefty tax bills next year and soaring gas prices.

Know your options. It’s time for a financial gut check. Are you sticking to your budget? Do you have a budget? If costs continue to rise as predicted are you able to cover them? By sitting down and taking a hard look at your situation and taking action NOW, you’ll avoid being up against the wall in the near future. If you’re considering selling, talk with your agent about the true market value of your home. Find out about how long it will take your home to sell and your net return on your home. Have a plan in place so that you don’t get stuck. 

Build a team of advisors. Now is the perfect time to start rounding up your team. Talk with your CPA about taxes. There may be a creative way for you to reduce your yearly tax expense or perhaps there are a few deductions you missed. Put a plan in place to be able to handle your likely increase next year. Talk with a financial planner and update your long term financing plan. Is your 401K performing as best as it could? Are there other options for you? I’ve already mentioned the benefits of speaking with your mortgage consultant and Realtor. In today’s transitional market you need the expertise of professionals to guide you. Making the right decision can help you capitalize on emerging opportunities. Making the wrong one can cost you THOUSANDS.

Take action NOW. Pick up the phone, get on the internet, talk with friends and family who can refer you to a professional who can help you get your plan in place now. If you wait, it could be too late. Don’t be put in a position where you have to give up your hard earned money to get out of a situation. Build your team and get the right advice. Put your plan together and implement it. Trust me, you’ll sleep much better knowing you are knowledgeable and prepared.

If you have questions you can contact my office at 630-564-0331 or find out more on the web at www.cbiami.thinkhomeloan.com

Charles Biami
Senior Mortgage Consultant
Home Mortgage Inc.
Burr Ridge IL
630-564-0331 cell
630-522-0140 x104 office
www.cbiami.thinkhomeloan.com

P.S. Search foreclosures free at www.cbiamihomeloans.com

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