It’s hardly a secret that the United States, and to some extent United Kingdom, is now in the middle of a mortgage crisis of epic proportions. A lagging economy has met disastrously with the once attractive flexible rate mortgage rates coming back to hit home owners hard.
Higher interest rates have created a sudden increase for those with flexible rate. When a budget is already tight, this can make it very difficult to maintain payments and stop repossession. Lenders are also pressured because of the high number of defaults and the cost of carrying loans that are delinquent.
You may have heard the phrase “rent back house” in connection with discussions on stopping home repossessions and wondered what it means. Basically, this quick term, “rent back house,” is shorthand for a solution that allows a defaulting mortgage holder to at least stay in their home by renting it. Some companies also allow them to sell and buy back their homes or even have a rent to own scheme or other options.
The company that buys a “rent back house” will charge the occupants a rent that is lower than their mortgage payments had been, thus reducing the financial strain on the homeowners. The sellers do not have to incur the expense of moving and will receive a lease that guarantees their housing price for some period of time, thus removing the risk that changing interest rates could increase their housing costs.
The problem is that the rent is not permanent as a fixed rate mortgage would be, and when the term expires, the amount can rise considerably. In fact, the new owner can always sell the property again and the person who takes ownership may want more rent or even want to occupy the property and require the tenants to leave. This scenario is possible but in reality is highly unlikely because investor buys the property to keep it long term and wants to keep the tenant there for as long as possible. But uncertainty clearly remains.
A buy back option can ease the dilemmas for you. When making your agreement, though, there are some options you’ll want to make sure to negotiate into your buy back contract. Get a written guarantee that the house won’t be sold out from under you for a certain amount of time, generally two to five years, while you’re trying to get back on your feet. You should also try to secure an agreement that provides for you to buy the house back at current market price or lower during the lifetime of the agreement.
Rent back provider arrangements and quick sale purchases have a significant disadvantage. You will be selling the house for much less than the current market price and will have to buy it back at the full market price. However, if you are in financial difficulties, these plans may let you get through them and buy back the house when your finances are in better shape. Flexible rates present similar risks. In any of these cases, it will be attractive to buy the house again at today’s price if housing prices start to rise again.
How did so many get in this home crunch situation? The flexible rates were handed out like candy when home loan interest was very low. These special low “starter” rates were given allowing too many people to qualify for loans that they could not afford. Having budgets that were only good enough for starter rates so when interest shot through the roof, the new payments were unreachable for them. This left them with very few choices. Sure maybe a quick sale or rent back house plan with possible repurchase rights as not to face repossession. For the people who fell in that category, the option to rent back and then buy back the same house without having to move out could save them from unnecessary upheaval and heartache.
A lagging economy has met disastrously with the once attractive flexible rate mortgage rates coming back to hit home owners hard. This unwelcome burden for those already on tight budgets is the source of great concern, as many must now fight to stop repossession. Basically, this quick term, “rent back house,” is shorthand for a solution that allows a defaulting mortgage holder to at least stay in their home by renting it. Some companies also allow them to sell and buy back their homes or even have a rent to own scheme or other options.
- Peter Shukla
This entry was posted on Thursday, October 29th, 2009 at 1:10 pm and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
