Further Reading

While it is no secret that the U.S., and to some extent the UK are now in the middle of a mortgage meltdown of epic proportions due largely in part to the lagging economy colliding with the once attractive and flexible mortgage rates that are now coming back to haunt those who took advantage of it at the peak of the market.

With mortgage payments suddenly greatly increased due to higher interest on those flexible rates, and with many already having budgets as tight as they could get, many are now struggling just to stop repossession. With so many defaults, lenders are also strapped and less likely to able to carry delinquent loans.

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 who buys the home in a "rent back house" scheme will usually offer to charge a rent that is much less than the current mortgage payment which eases the crises for the homeowner. The seller need not move out of the house, which is of course yet another expense, and has a lease that fixes a housing cost for a period of time instead of the worry of what the next mortgage interest rate increase might be.

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, that ensures that the house cannot be sold from under you for at least two years, will eliminate this uncertainty. Some companies will allow you to exercise your option at the house's current market price or less if you buy it back during that period. If at all possible, you need to make an effort to have a buy back option included in your contract.

You should be aware that quick sale buyers and rent back providers will typically pay below actual market prices, but you will buy it back at the full price. This still can be a good scheme for homeowners to buy again once they are more financially secure. Of course, flexible rates are still risky. But one good thing is that if property prices continue to go up in the near term, you will be able to buy the house at today's price or possibly even lower.

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.

Flexible rate loans are readjusting to higher rates resulting in higher loan payments. This unwelcome burden for those already on tight budgets is the source of great concern, as many must now fight to stop repossession. Lenders are also under pressure from the increase in default loans making them less able to hold onto delinquent loans. Basically "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.