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Occasionally my mind entertains the oddest questions, some relevant to mortgages, some not so relevant such as:

1. Why can’t the feds just make mortgage rates a flat rate based on the program you want and the credit score you have?
2. Why do some people shop for a mortgage to get the lowest rate yet pay a 20% interest rate on their credit cards?
3. Why do people think they deserve to own a home when they’ve never paid any bill on time?
4. Is living in the suburbs really a better environment for children?
5. Why does the World Series of Poker still have Milwaukee’s Best as a sponsor?
6. Why didn’t they have all the Marvel movies like Spiderman, the Hulk, Fantastic Four when I was a kid?
7. Why are college coaches the highest paid state employees when they’re the biggest liars (think Nick Saban) on campus?
8. Why are there only 28 days in February?

Little did I know Slate actually has answered one of questions in 28 Days? Why February Gets the Shaft.

Interesting posts and articles from around the web:

Denver: Elusive upside to downtown - The upside to a housing slump is cheaper homes.

Credit Cards: Americans and savings, hardly go hand in hand

Implode O Meter: Lenderama informs us that the Implode O Meter lawsuit is null.

Zillow: Ten points of interest on Zillow.

4Realz: Ten points of interest on 4Realz.

Trulia: Could be seven, could be ten points of interest on Trulia.

Wall Street: Paul Kedrosky always highlights interesting posts/articles including Wall Street and Web 2.0

Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrower’s income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. It’s important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible.

Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, it’s safe to assume that as the consumer’s credit score goes down, interest rates will go up.

A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time.

Loans designed for consumers with less-than-perfect credit – sometimes referred to as “sub-prime” – can range anywhere from A-minus, B-paper, C-paper or D-paper loans.

If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.

A qualified mortgage consultant will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will want to review the terms of the existing mortgage loan to determine if you have a pre-payment penalty clause written into your contract. In general terms, that means that if you sell the home or try to refinance before the pre-payment penalty expires and you have not already paid off 20 percent of the original loan amount, you will most likely have to pay a 3 percent fee back to the lender to compensate for the high risk and high costs incurred to provide that financing.

Next, you should obtain free copies of your credit reports from www.annualcreditreport.com and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty.

There are five factors that make up the credit score and your mortgage consultant can coach you through some basic strategies to improve your credit score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus. You’ll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely.

Once your credit score improves, it’s time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.

This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage consultant who can give you a road map to follow and a strategy for success in building personal wealth.

A mortgage refinance is done by applying and qualifying for a new mortgage loan and then using the proceeds from the new home loan to pay off the old home mortgage loan. You can refinance for many reasons: to take cash out of the equity in your home, to lower your interest rate, to lower your mortgage payment, to simply switch mortgage companies because you are not pleased with your current mortgage company, to consolidate debt, to pay off high rate credit cards, to lower the term of your mortgage, to increase the term of your mortgage, to combine a first and a second mortgage, to switch from a fixed rate to an adjustable rate, or to switch from an adjustable rate to a fixed rate, and for many, many other reasons

When refinancing in order to payoff credit card debt, keep in mind that credit cards are unsecured debts. When you refinance, you are transferring unsecured debt into debt secured by your home. Make sure you are financially savvy enough not to continue the patterns that resulted in the credit card debt or your could be putting your home at risk.

One of the most popular reasons for doing a mortgage refinance would be to obtain funds for improvements on the home. Since the money spend on such improvements often directly increases the value of the home, it is a very sensible way to obtain such funds. Some of the most popular improvements include new kitchens and bathrooms, new windows, landscaping and swimming pools.

Many homeowners are using the appreciation in there homes to get rid of high rate credit cards by consolidating. When you consolidate your loans you often reduce the amount of money your spending each month.

One of the main benefits to refinancing is to consolidate consumer debt. Consumer debt (i.e. Credit Cards ampersand Auto Payment) is typically at a higher interest rate and is never tax deductible. Interest paid on debt tied to your home is deducted from your income at the end of the year often substantially reducing your tax liability. This tax favorable status is one of the many benefits of refinancing.

Refinancing your home can save you hundreds per month when you consolidate debt.

What if you want to add on, remodel or update the kitchen? You may not have the cash to do so, but the cost of improvements may be more than covered by the increase in value of the home. This is a great use for a home equity line of credit or a cash-out refinance.

Many people refinance to change from a variable rate to a fixed one or vice versa. Refinancing a high interest rate after a 24 month good payment history could save you a lot of money on your monthly payment.

If planning to purchase investment property, refinancing your primary residence is a great way to raise the cash for the down payment required.

Always consider your long term benefits of doing a refinance. The interest rate is not the most important aspect of the transaction. Even if your current rate is lower, you will probably save more money over time with a debt consolidation refinance then you would be with maintaining the situation you are currently in. Ask yourself a few questions: How long have I had this balance on my cards? At the rate I am paying my credit card debt down, how long will it actually take to pay them completely off? What will be my total cost once I have paid off all my credit card debt?

You can refinance to switch to an interest only loan to maximize cash flow or to switch to a Pay Option ARM to provide yourself with a lot of flexibility in your monthly mortgage payment. Some people also refinance simply to get a way from their current mortgage lender because they are not pleased with them.

Another main benefit of refinancing is to get out of PMI (Private Mortgage Insurance). In most cases if your Loan-To-Value was above 80% when you moved into the home then you most likely got stuck paying PMI. Your home may have appreciated quite substantially over the past year or two and with a new lender they will take new appraised value thus eliminating PMI.

Most people refinance to because of changes in their financial situations. Some, after determining that they can afford a bigger mortgage payment, refinance to a shorter loan term to save on the total amount of interest charges. Others, after experiencing a decrease in income, may refinance to a longer term loan to take advantage of the lower monthly payments. Yet others refinance to withdraw from the equity built in their homes for other financial purposes.

Using equity in your home to pay off high rate loans (credit cards, auto loans, etc.) may have certain tax benefits also. Consult your CPA for more information.

Many homeowners refinance to pull out cash to purchase another property.

To reduce the term or length of your loan, doing so can save you thousands of dollars in interest.

Editors Note: Due to the mortgage and credit crunch, interest only mortgages are more difficult to obtain. If you’re in need of a Denver home loan contact us to discuss your mortgage options.

Paying interest only is a great way to minimize housing expenses per month. The concept of this type of payment structure is to allow you a set amount of time in which your payments will be based off of interest only. Every borrower should keep in mind that this loan will not pay down any of the principal balance during the interest only portion of the loan.

Why pay interest only - do you think you will ever really pay off your mortgage? How do you gain equity in your home? Is it from paying down your principal or more so from the market appreciation of your home? When you consider these things paying interest only and having the extra cash flow often makes good sense.

Examine every loan option with your mortgage broker before you decide on a interest only loan program. Your mortgage broker will be able to determine if the interest only option is a good fit for you. This will ensure that you are not frustrated by an uninformed decision years down the road.

Many lenders charge a small premium in order to have interest only premiums, usually 1/8th or 1/4p point. Make sure you discuss this with your mortgage broker as well.

With an interest only loan you will still build equity in your home even if you only make the interest only payments and never apply any extra payment towards the principal. This is achieved because your house is always going to appreciate and gain value (unless you live in a community with declining home values, which is not very common). Therefore, You can still gain equity in your home while freeing up cash to pay down other bills, invest, and/or just to simply put save for a rainy day.

Many people choose interest only loans to increase their cash flow and not be encumbered by such a huge mortgage payment.

With any type of interest only loan you can choose to make additional payments to reduce your principal balance. These type of loans work very well with borrowers whose income may fluctuate on a monthly basis or borrowers who know they will be receiving a pay increase in the future and want to minimize the monthly payment until they have a larger income.

Interest Only loans allow you to purchase a larger house without increasing your monthly mortgage expense and it gives you mortgage payment flexibility to better manage your monthly cash flow without deferring interest.

Paying interest only may free up needed cash flow to help make payments on an investment property you may want to purchase.

Often times a real estate investor will want an interest only loan. The low minimum payments help to increase cash flow for other purchases.

The use of interest-only loans was unheard of just a few years ago, but in the last year these loans have exploded, giving many home buyers leverage against escalating home prices and enabling them to buy homes. A recent Wells Fargo survey of American homeowners showed that the majority of homeowners do pay principal on interest-only loans when they are flush with cash. 73% pay both the principal and interest at least some of the time. Only 25% pay only interest all of the time. Interest-only options on home loans give the home buyer the flexibility to choose how much to pay on their mortgage each month - just the interest-only payment or a little extra to pay down that principal.

Interest Only mortgages require monthly payment of “interest only” for a specified period, usually the initial 10 years of a 30 year loan term. At the end of the interest only period, the loan is re-amortized to pay off the mortgage in the remaining 20 years. The monthly payments will naturally be much higher compared to that of the interest only period. In practice, most homeowner refinance before the end of the interest only period. The disadvantage of Interest Only loans is in that the homeowner will not build equity during the interest only period. There is also the risk that the home has since lost value when it comes time to refinance.

Paying interest only may allow you to contribute to your 401k, or IRA retirement account, because of your new lower monthly payment.

Interest only loans can also be of value for borrower’s seeking to consolidate other debt carrying high interest rates like credit cards. By minimizing your mortgage payment, you can afford to pay down these other debts more quickly.

Editors Note: Due to the mortgage and credit crunch, option arm mortgages are more difficult to get. If you’re in need of a Denver mortgage contact us to discuss your mortgage options.

Self-employed borrowers with inconsistent income Borrowers with inadequate or no retirement savings Borrowers who want cash reserves for emergencies Borrowers who need money to start or expand a business Borrowers who need mortgage payments to be as small as possible Borrowers who want to stop using high interest credit cards Borrowers seeking financial flexibility

The great thing about the Pay Option ARM is that it can benefit most people. Because of its flexibility, it can be catered to meet the needs and goals of most people. I personally like the Pay Option ARM because it gives me more cash flow on my rental property and I have more money to invest in other properties or investments.

However, it really needs to be conveyed that this loan is NOT meant for everyone. The Pay Option mortgage can have its down falls and if you are not the type of person who is very involved with their finances, you might want to consider a 3/1 or 5/1 Interest only ARM.

The pay option arm is a great alternative for those considering a Reverse Mortgage giving them a much lower payment option.

Pay Option ARMs are great for many borrowers. Another common situation is borrowers who own a rental property. The flexibility and minimum payments can be used to maximize cash flow from the property and or to off set additional expenses such as repairs.

Pay Option ARM is also referred to as a Pick a Payment loan. It gives the borrower the option to make one of four payment types every month, (1) minimum payment, (2) interest only payment, (3)payment based on 30 year amortizations, and (4) payment based on 15 year amortizations.

Benefits of refinancing your home loan: 

• For many people, refinancing their home can help them save a lot of money every month. There are two types of refinances. One is a cash-out refinance. This can be used to pull equity from your home, or to pay off debt. The other type of refinance is a rate and term refinance, where you change your interest rate or loan program.
• Many homeowners refinance to pay off their mortgage in shorter time with almost the same monthly payments. This is usually done by refinancing a 30-year mortgage with a new 15-year or 20-year mortgage with a lower interest rate.
• If you are refinancing to take cash out to pay off high interest credit cards, then the refinance is a benefit to you. The credit cards could take years to pay off, and the interest on the cards is not tax deductible. The mortgage interest on the other hand is tax deductible, saving you even more money than just your credit card monthly savings.
• Refinancing can benefit you if you need to get cash in order to do a remodel or any other home improvement. Refinancing your current mortgage could save you thousands of dollars in interest payments over other more expensive credit sources available.
• If you refinance to a lower interest rate you benefit from monthly cash savings. These monthly cash savings can be used to invest for your future further increasing the benefits of the refinance.
• You can also pull cash out of your home to use as a down payment on a property you plan to rent, which will usually reduce your interest rates when purchasing cash flow properties.
• Refinancing can also maximize the money that you are spending every month. If you are able to lower your term and keep your payment relatively close to what you are paying now, you will be accomplishing more for the same amount of money.
• Just remember that if you pull out more than $100,000 beyond what a home-improvement project costs you may not be able to deduct the interest on your taxes. Always consult a certified professional before making major decisions.

Credit scores have become very important to consumers for a variety of different things. Your credit score determines whether you will be, approved, declined, required to place a large down payment, or have to obtain good or very unfavorable terms for not only mortgages, home loans and cars, but for a variety of other things as well. Your credit and credit scores can now play a major role in determining what premiums you pay for homeowners and auto insurance, whether or not a utility company (phone service, gas service, electric, etc…) will require you to place a deposit down to get service turned on (and how much of a deposit), your rate and determine whether you will be approved or declined on personal loans and credit cards, whether or not you are able to rent an apartment or home, amongst many other things. Many employers now look at a potential employee’s credit report before hiring them. Therefore, you can see how credit and credit scores can play an important role in your life and with bad credit it can force you to pay higher interest rates, higher payments and higher premiums on numerous different items. There are many factors that help contribute to determine a persons credit score that you will learn about here.

The number of open accounts you have influences your credit score. Less than 3 or more than 5 can decrease your score.

The companies that determine your score do not fully disclose all the inner workings of what goes into your score. Granted they tell you what percentage of types accredit help or hurt you but they don’t get into the nuts and bolts of it all. There are however some basic rules of thumb. One rule of thumb is to have your balance be lower then half the highest available balance. So if your highest available balance on a visa card is say 10k. Make sure your actual balance is below 5k. There is also a seasoning factor. Someone who has maintained good credit standings for a long period of time will generally have a higher score then someone who just established their credit.

Whether you pay all your bills on time is probably one of the more important aspects that determines your credit scores. Most companies that extend credits to you report to the major credit repositories on a regular basis. Any late payments history will have a negative effect on the credit scores. The more recent the reported “lates”, the higher the impact on scores. Lender banks consider mortgage payment “lates” much more severe than credit card late payments, and punish homeowners with mortgage “lates” accordingly with higher interest rates and/or lower loan amounts.

Your credit report will list any collection or charged-off accounts that you may have. Having these kind of accounts reporting will definitely have an adverse affect on your credit score. A word of caution though. Paying off collection accounts, especially older ones may cause your credit score to go down, at least in the very short term. If you are applying for a mortgage please consult with a mortgage professional such as myself before paying old collection accounts.

The number of recent inquires has an affect on your score as well. Although it does not carry as much leverage as many other factors in determining your credit score you should still avoid having your credit checked unless necessary.

If you have had a bankruptcy, you can expect it to stay on your credit report for up to 7 full years. Although it will still show, there are ways to still increase your credit score after a bankruptcy.

Editors Note: Due to the mortgage and credit crunch, option arm loans are more difficult to get. If you’re in need of a Denver home loans/mortgages contact us to discuss your mortgage options.

Pay option ARMS are not for every borrower but there are a few borrowers that can benefit from the Pay Option ARM mortgage programs available today. Self-Employed and Commissioned workers- With the flexible options in the Pay option programs these borrowers can adjust their monthly payments according to their monthly earnings. Borrower’s with high consumer debt– By lowering their mortgage payment these borrowers are able to pay of higher interest debt faster.

When considering whether to refinance into a Pay Option ARM, always keep in mind that Pay Option ARM can create negative amortization. Negative amortization occurs when a home owner makes the minimum monthly payments, which is less than the interest incurred, and end up owing more than what the homeowner owed originally. Most Pay Option ARM programs re-adjust the payments every year so that the loan balance would not be too much more than the original loan amount.

Ask your mortgage broker to review your situation and see if you could benefit from the pay option ARM programs. If a pay option ARM is not for you there may be better programs based on your situation.

Option Arms are a good choice for:-Increased cash flow on investment properties-Areas with high appreciation-Lower payments in order to invest and payoff debt-People who have unpredictable incomes.

Pay Option ARM’s are generally not meant to be programs that one stays with for long periods of time, such as 10 years or more. Pay Option ARM’s can incur negative amortization which means instead of your mortgage balance going down it actually increases. Most Pay Option ARM’s have a cap that will not allow the balance of your loan to increase higher than 115% of the appraised value of your home. Most also have a rate cap that states the rate can’t increase any higher than 9.95%. These numbers may vary slightly so check with your mortgage broker on the exact details of your loan program.

The Pay Option ARM gives you 4 “options” to make your payment.(1) The minimum payment.(2) Interest only payment.(3) 30 year fully amortizing payment.(4) 15 year fully amortizing payment

The pay option arm is also a great tool for seasonal workers. If you are a painter, and know that the majority of your income comes from the summer months, then you could adjust your payments to those months. You would be able to pay more on your mortgage while you are making more money, and pay less during the months that are typically slower for you. This would leave more cash in your hands during those slow months.

A Pay Option ARM is also a great tool for property investors. It gives you flexible payments that can help in months when the property is vacant, or in the event repairs are needed it can be used to offset the cost of repairs rather than using cash out of pocket.

If your household, like many in the US today, seems never to have enough cash every month and you find yourself constantly turning to credit cards or other expensive debt, this loan may be quite helpful. The Pay Option ARM can free up needed cash every month and help you avoid the other, more expensive kind of debt.

The Pay Option ARM is also a great way to pay down credit card debt, without laying out additional cash on a monthly basis. This method of managing your mortgage provides interest savings as well as it will usually provide some sizeable Tax savings.

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