Dec
6
These rates are freezing
Filed Under economy, mortgage, rates | 2 Comments
Five-Year Mortgage Rate Freeze Looms
Wednesday December 5, 8:42 pm ET
By Martin Crutsinger and Alan Zibel, Associated Press Writers
Bush Mortgage Plan Will Freeze Certain Subprime Interest Rates for 5 Years WASHINGTON (AP) — The Bush administration has hammered out an agreement to freeze interest rates for certain subprime mortgages for five years to combat a soaring tide of foreclosures, congressional aides said Wednesday.
The aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of up to seven years and mortgage industry arguments that the freeze should last only one or two years.
Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.
The administration said President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with mortgage industry officials.
Treasury also announced there would be a technical briefing to explain more of the proposal’s details.
Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes — to ensure the break is not given to real estate speculators.
The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.
In many cases, the higher rates will boost monthly payments by as much as 30 percent, making it very difficult for many people to keep current with their loans.
The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.
Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif.-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.
The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed. They opted for a proposal that was along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.
Paulson and other federal regulators began holding talks with some of the country’s biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.
Under the typical subprime loan — those offered to borrowers with spotty credit histories — the rates for the first two years were at levels around 7 percent to 8 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.
For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.
The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.
The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.
The administration plan is designed to deal with the crisis by letting subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is hitting many parts of the country.
With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.
The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.
Clinton said her own proposal that would impose a 90-day moratorium on foreclosures and freeze the rates for five years or until they had been converted to fixed-rate loans was a better approach that would help more people.
“Although the administration is finally giving the foreclosure crisis the attention it deserves, it seems that President Bush is going to give struggling homeowners far less than they need,” she said in a statement.
Mark Zandi, chief economist for Moody’s Economy.com, called the administration plan a good first step, but said the government eventually will have to go further given the problem’s size and the threat to the economy.
“This is the most serious housing downturn we have seen in the post World War II period,” Zandi said. “It is a threat to the broader economy. The risks of a recession are very high.”
Associated Press reporters Deb Reichmann and Nedra Pickler contributed to this report.
Sep
18
Fed Funds Rate down .5%
Filed Under mortgage, personal finance, rates | Leave a Comment
Fed Funds Rate down .5%
WASHINGTON (Reuters) - The U.S. Federal Reserve on Tuesday slashed the benchmark federal funds rate by a half-percentage point in a bold bid to buffer the economy from a housing slump and related financial market turbulence.
ADVERTISEMENTThe decision by the central bank’s Federal Open Market Committee took the overnight rate down to 4.75 percent, its lowest level since May of last year. It was the first cut in the interbank rate — the Fed’s main tool to influence the economy — since June 2003 and the first half-point reduction since November 2002.
Financial markets had widely expected the Fed to lower overnight borrowing costs, but were split over whether the move would be a quarter-point or more-aggressive half-point.
In a related move, the Fed also lowered the discount rate it charges for direct loans to banks by a half-point to 5.25 percent.
What does this mean?
According to Marketwatch:
Here’s what consumers can expect:
If a consumer is paying 8.25% interest on a $100,000 loan that is based on the prime rate — such as a home-equity line — a rate reset to 7.75% is likely. That’s the difference of about $500 a year, or roughly $41.66 a month in interest charges. Resets on some adjustable-rate mortgages will be slightly better. Many ARM interest rates are based on an average of Treasury note yields coupled with a fixed margin, now at about 2.75 percentage points. At Tuesday’s 10-year yield of 4.49%, the rate is 7.24%. In July, it was at 7.77%. That makes the monthly payment on a $200,000 mortgage $1,363, about $73 less than it was in July. But Treasurys could head even lower following the Fed action. Rates on credit cards, which have taken on a bigger role in consumer financing in recent months, are likely to dip a bit too, lowering minimum monthly payments. Savings-deposit rates will go down, meaning that your bank balances won’t appreciate at the same rates you’ve seen all year. Ditto on money market rates, hurting those on fixed incomes — generally the elderly — who rely on cash generated from such safe investments. Interest rates on new loans for cars will fall, though it won’t have any effect on loans already in place. But Brian Bethune, the U.S. economist with Global Insight, urges consumers to wait until contract negotiations between autoworkers and their bosses are done this month. “They could pull out all the stops,” he said about automakers’ desire to unload inventory. And if the Fed lowers rates again next month, all the better.
Jan
1
A HELOC is a home equity line of credit.
This type of loan is basically a line of credit secured by a second mortgage on a property. You can borrow a much as you need as long as you do not exceed the maximum loan amount. You pay interest on the outstanding loan balance and not the entire line of credit.
A Home Equity Line of Credit is an open ended mortgage, meaning a homeowner can withdraw and repay as often as he likes, up to the available credit limit. A HELOC works much like a credit card account in that respect. It differs from a credit card account in that a credit card account is an unsecured loan, whereas a HELOC is secured by the homeowner’s property.
Usually, whenever you have a mortgage that is above 80% Loan TO Value, then the difference above 80% is usually a HELOC loan. For example, if you need 95% Loan To Value then your 1st mortgage will be at 80% Loan To Value and at a lower rate and the remaining 15% will be considered a 2nd mortgage and be a HELOC.
A HELOC (home equity line of credit) is an excellent financing tool, for some borrowers. A HELOC is essentially a line of credit secured by a mortgage or deed of trust on your home. You only pay interest on the amounts you borrow on the HELOC. If you don’t use any of the line of credit, then you don’t make any monthly payments. You can draw from the HELOC by writing checks issued to you by the lender. Usually a HELOC is considered a second lien on your property.
It’s important to be careful with HELOC’s. As any other type of credit they have a good use but one can end up spending too much with this line of credit. If you are paying off other debts such as credit cards ampersand autos it might make sense to get a standard fixed rate 2nd mortgage where you get the lump sum at closing to pay off all debts and then you pay on that mortgage along with your first until it’s paid off. You won’t have the ability to pull money whenever you think you need it. On the flip side of that, if you have income that comes in large quantities and is sporadic or not stable. This type of loan might be used as a cushion for the times in-between the checks.
A HELOC is a far superior debt device than using a credit card or financing a car/boat/ RV purchase. One of the many advantages to using a HELOC is that the interest expense is tax deductible. Essentially you are saving 25-35% on every interest dollar as it is deducted from your income when you do your year end tax preparations.
Many HELOCS today offer a credit card which can be used at your favorite stores and restaurants.
Usually the rate on the Heloc is the prime rate plus a margin.
A HELOC is traditionally based on the prime rate and a margin is added to reflect the true rate to be paid by the borrower. HELOC’s may offer a initial lower rate (Teaser rate) for a specific time period. When the defined time period has expired the rate will adjust to prime + margin.
HELOC(s) or Home Equity Line(s) of Credit are very popularly used as the “20″ in an “80-20″ or 80/20 piggyback mortgage strategy.
A Home Equity Line of Credit can also be used to purchase the property or as a first lien on the property. The HELOC can be used to payoff or consolidate debt, personal use, or just to have.
A home equity line is a revolving credit line tied to the equity in your home. Most home equity lines use the prime rate as a base for setting interest rates. For example, you hear lenders describe rates as prime + zero or prime + 1. This means the borrower will pay monthly interest according to the Prime Rate (lets use an example prime rate of 5.00%) plus a margin. In this case, prime + zero would equal an interest rate of 5.00%, or in the case of prime + one it would be 6.00%. Additionally, most home equity lines have interest only payments.
Jan
1
Unlimited Cash-out Refinance
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Unlimited cash out HELOC refinancing primary residence and second homes
HELOC stands for Home Equity Line of Credit.
Preferably a job where you can show W2’s and pay stubs.
Higher credit score individual’s can obtain “no-doc” HELOCS or fixed second mortgages.
Many times you can take advantage of a “no cost” HELOC or Fixed rate second. Ask your Loan Officer if this option is available to you.
If you need to borrow money, home equity lines may be one useful source of credit. Initially at least, they may provide you with large amounts of cash at relatively low interest rates. And they may provide you with certain tax advantages unavailable with other kinds of loans. (Check with your tax adviser for details.) At the same time, home equity lines of credit require you to use your home as collateral for the loan. This may put your home at risk if you are late or cannot make your monthly payments. Those loans with a large final (balloon) payment may lead you to borrow more money to pay off this debt, or they may put your home in jeopardy if you cannot qualify for refinancing. And, if you sell your home, most plans require you to pay off your credit line at that time. In addition, because home equity loans give you relatively easy access to cash, you might find you borrow money more freely. Remember too, there are other ways to borrow money from a lending institution. For example, you may want to explore second mortgage installment loans. Although these plans also place an additional mortgage on your home, second mortgage money usually is loaned in a lump sum, rather than in a series of advances made available by writing checks on an account. Also, second mortgages usually have fixed interest rates and fixed payment amounts
Ask about our special low monthly payment programs for unlimited cash out and debt consolidation refinance. Pay off those high interest bills.
You still need to have a job to qualify.
Is there anything else I can do to help? I understand a cash-out refinance is a difficult decision and I want to thank you for reading the information above. If you would like to continue this conversation than please contact me so you and I can discuss your financial situation. Please read more valuable information and when you feel comfortable I would like you to contact me.
Unlimited cash out’s may also be available as a reduced or no documentation type of program.
Jan
1
Should you pay “points” to get a better rate? Do you plan on keeping your loan for a while? Then it may make sense to “buy” a lower interest rate by paying one or more “points.” Even if you’re unsure of how long you plan to keep your mortgage before you move or refinance, paying points now for a lower rate may make sense. For example, do you have a high-paying job now but you think you might change careers in the next few years? Talk it over with a qualified Mortgage Planner. Its part of a Mortgage Planners job to help you find the right loan for your means and goals.
If you look at a comparison of 2 different loan programs, one with points and one without points, laid out by a mortgage professional, you will be able to see your total cost of the loan for each program. The most important factor here is the amount of time you plan to hold this property before refinancing or selling. This will help you make the decision rather quickly.
For borrowers with ample cash and low return on investment for their cash, paying additional points to buy down an interest rate may be a good idea. One should always consult with a loan officer to analyze the cost of the buy-down and the amount saved with the lower buy-down rate over the life of the loan. A knowledgeable loan officer can show a homeowner the number of years the homeowner needs to keep the loan in order to recoup the cost of the buy-down, and thereby allowing the homeowner to make an informed decision.
Paying points may decrease your debt to income ratio
Paying points to get a lower rate when refinancing into a long term fixed mortgage often makes good sense. The points can normally be financed into the loan instead of paid out of pocket. Over the long haul, money saved from the lower interest rate will more than make up for the principal added by the points.
When you pay “points,” you pay interest in a lump sum upfront to get a lower rate on your fixed rate mortgage. Each point costs 1% of the mortgage amount. The more points you pay, the lower your mortgage rate. So, which is the best for you? More points and a lower rate? Or fewer points and higher rate? To decide, you need to consider: (1) Whether you can afford to make the upfront payment now for points. (2) The length of time expect to have the mortgage. The longer you plan to have your mortgage, the more it makes sense to pay for points now because you’ll have a long time to benefit from the lower rate.
There are basically two types of buy-downs, a permanent buy-down and a temporary buy-down. A permanent buy-down entitles the homeowner to a lower interest rate for the life of the loan. A temporary buy-down gives the borrower a lower interest rate for the first two or three years of the loan term. A common temporary buy-down is the “2-1 Buy-Down”, which gives the homeowner a discounted rate of 2% below his mortgage note rate in the first year of the loan, 1% below the qualified note rate in the second year, and the note rate for years 3 to 30. For example, consider a borrower qualifying for a 30-year fixed rate mortgage of $200,000 at 7% interest rate, with the option of a 2-1 Buy-Down that costs 2.25 points, without the buy-down, the borrower’s monthly payment would be $1,330 for the life of the loan. With the 2-1 buy-down, at the cost of $4,500 (2.25 points = 2.25% of the loan amount), the borrower interest rate for the first year is 5% (2% below qualified note rate of 7%) and the monthly payment for the first year is $1,074, 6% (1% below note rate) and a monthly payment of $1,199 for the second year, and 7% (qualified rate) and monthly payments of $1,330 for the remainder of the loan term. Another common Temporary Buy-Down is the 3-2-1 Buy-Down, which works very much like the 2-1 Buy-Down, except in that it gives the borrower 3% below qualified rate in the first year, 2% below in the second year, 3% below in the third, and the normal note rate for the rest of the loan term.
When deciding weather or not to pay points to get a lower rate you should also look at your “break even point”. One point is equal to 1% of your loan amount. If paying that extra point lowers your rate then your savings are in a lower monthly payment. The break-even point is the amount of time it takes for that monthly savings to exceed the total initial investment of the point. When comparing different loan scenarios and options with your mortgage broker, have them calculate your break-even time for each scenario. You want the break-even point to be shorter than the amount of time you plan to spend in that mortgage (if you plan to sell or refinance in the future)
Points are normally tax deductible whether you or the seller actually pay for them. Points on a refinance are not deductible in the same way. On a refinance you normally have to spread your deduction out over the amortization of your loan (check with your tax advisor).
If you are tight on funds for closing opting for a loan with the lowest upfront cost and no discount points may cost may be right for you. Over the life of the loan you may be paying out more money however enabling you to provide for your families immediate needs.
Jan
1
Reverse Mortgage
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A form of mortgage in which the lender makes periodic payments to the borrower, using the borrowers equity in the home as security. For older owners who have a lot of equity in their home, this can be used as income. The loan does not need to be repaid until the borrower sells the property or moves into a retirement community.
When you sell your home or no longer use it for your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and service fees. Any remaining equity belongs to you or your heirs. It’s important to remember that you can never owe more than the home’s appraised value when it is sold. None of your other assets will be affected by your reverse mortgage loan.
Reverse mortgages are a great way for an elderly person or couple to supplement income, especially if they are only getting social security as retirement income.
Any principal and interest accrued over the life of the loan is due and payable in one lump sum when the last borrower in the home is no longer the primary resident. In most cases, the amount that is due can be paid either by the selling of the home (where the difference of the selling price and remaining debt is left with the heirs), or refinancing the reverse debt with a traditional mortgage.
This is a great income supplement for those who need it.
A reverse mortgage is an agreement allowing a homeowner to borrow against home equity and receive tax-free payments until the total principal and interest reaches the credit limit of equity.
In reference to the HECM (most popular reverse mortgage), the fees associated with this loan are as follows: 1) Maximum of 2% origination fee based on the lesser of FHA’s lending limit or the home’s appraised value; 2) Closing costs such as title, escrow, appraisal, etc; 3) 2% charged by HUD on the lesser of lending limit or home value for initial mortgage insurance premium; 4) Monthly servicing fee of between $25 and $30 that is set aside initially and added to the loan balance as the loan progresses.
Loan to Value calculations, Credit requirements (FICO scores), and Debt to Income calculations are not used in determining how much a borrower can access in equity. For the HECM program, the amount that can be borrowed is based on the lesser of home value or lending limit, age of youngest borrower in the home, and an interest rate.
A Reverse Mortgage is a financial tool which provides seniors 62 years of age and older with funds from the equity in their homes. Generally speaking, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.
There are currently 3 reverse mortgage programs available. The most popular reverse mortgage program is the FHA insured Home Equity Conversion Mortgage (HECM). The second program is the Fannie Mae Home Keeper, and the third is a jumbo reverse mortgage (cash account) offered by Financial Freedom. With the exception of the Home Keeper, the HECM and the Cash Account can be structured in different ways (i.e. interest rate adjustment for HECM, point variation on the Cash Account).
Possible income source for those who are on social security or limited fixed income.
A Reverse Mortgage borrower cannot be forced out of his/her home. Nor will he ever owe more than the value of his house. Reverse Mortgages are “non-recourse” loans, meaning in the rare case of drastic declines in home prices, the homeowner can never be held liable beyond the value of the subject home.
A reverse mortgage allows homeowners that are 62 and older to unlock a portion of the equity in their home without having to make a monthly repayment. The amount that they can unlock will be determined by a combination of three things: 1)Youngest borrower’s age 2) Lesser of their home’s value or a lending limit (HECM and FNMA) 3) An interest rate.
There are three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.
Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.
You can get your money in a lump sum or monthly payments.
There are no credit requirements. Only that you need to 62 years of age or older and have sufficient equity.
You maintain complete ownership of your home.
If you are a senior at least 62 years old who is “house rich, but cash poor”, a reverse mortgage may be a viable option to help get you the cash you need. Whether paid to you in lump sum or in installments, reverse mortgages require no payments from your side and are generally not taxable and generally don’t impact social security or Medicare benefits.
Because this loan must be the first lien on the home, any existing mortgage balance must be paid with the proceeds of the reverse mortgage. For instance, if the amount that can be borrowed from the reverse is $100,000 and the existing mortgage balance on the home is $50,000, the $50,000 will be paid with the amount available from the reverse ($100,000) and the remaining balance ($50,000) will be available to the homeowner. The homeowner can elect to convert the $50,000 into a monthly payment, place it in a line of credit, take any or all of the amount at closing, or any combination of the three.
The amount of cash that a borrower can receive is based on a formula of factors that include age of the youngest borrower, the interest rate, value of the home and the county where the home is located.
Jan
1
No Closing Cost Mortgages
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Editors Note: Despite to the mortgage and credit crunch, No Closing Cost Mortgages are still available. If you’re in need of a Denver Colorado Mortgage contact us to discuss your mortgage options.
Many brokers offer a no closing cost option in exchange for a slightly higher interest rate over the life of the loan.
If you currently have a fixed-rate loan and can refinance at “No-Cost,” meaning you can obtain a lower rate with no out-of-pocket fees, it only makes sense that you should refinance. If you can take your 30-year fixed rate mortgage and leave the balance where it is and lower the interest rate, thus lowering the monthly payment, why in the World would you not do it? And even if you are several years into your current loan, a No Cost Refi may still save you money. If for example, you are starting year 5 of your loan, the refinance can amortize your loan over 25 years instead of 30. Doing it this way, you are not starting all over again. You would be paying off the loan in the same amount of time. A No Cost Refi could you save you thousands of dollars in interest over the life of the loan.
For homeowners refinancing for lower monthly payments, No Closing Cost mortgages may work out better even though No Closing Cost loans are at a higher interest rate. If a homeowner can save $300 per month by refinancing, even if he intents to sell the house in two years, he would save $7,200 during the two years. Of course he should make certain the new loan does not add to the old loan balance by more than $7,200. Without taking into consideration the time value of money, saving $7,200 over two years only to pay it back in the form of a higher loan balance when he sells the house does not benefit the homeowner.
No Closing Cost Mortgages should not be confused with No Money Down mortgages, which while also being more expensive in the long run, are for buyers who do not want to contribute a lump sum payment toward the price of their new home.
Borrowers elect “no-cost” loans for two reasons. They are either short of cash, or they don’t expect to have the mortgage very long. Borrowers in the second group minimize their upfront costs because they expect to pay the high rate for only a short period.
No Closing Cost Mortgages can help people short on cash obtain a mortgage with no out of pocket expenses. However, borrowers should understand no closing costs mortgages will cost them more in the long run depending upon how long they keep the mortgage. Lenders offset closing costs by charging borrowers a higher interest rate. This higher rate adds tens of thousands of dollars to a 30 year loan kept the entire 30 Years. Which, when compared to $4000 closing costs estimated on a $100000 Loan should make borrowers think hard about using a No Closing Cost Mortgage.
It makes sense to look at refinancing 6 months after obtaining a no closing cost loan. If your home now has a decent amount of equity, you may be able to obtain a lower interest rate due to a positive change in your loan to value ratio.
Many borrowers confuse a “No Cost” loan with a “No Out of pocket Cost” loan. In almost all refinances the closing costs can and are rolled into the new loan amount. This means that the borrower doesn’t have to pay for the closing costs with their own funds. A true “No Cost” loan most or all of the closing costs are waived in exchange for a higher interest rate.
Usually, the “no-cost” option is beneficial for first time homebuyers who may not have enough saved up to warrant paying the closing costs. It should be made very clear as to what options are available and the differences between a “no-cost” and other loans should be very clear.
Many potential borrowers mistakenly think that lenders who advertise “no cost, no fee” loans are actually waiving the costs and fees. The truth of the matter is that the borrower will still pay for these items in the form of a higher rate of interest.
Jan
1
If you are in a financial position where you are able top pay off your mortgage quickly without sacrificing other aspects of your life, there are a few ways to accomplish this. Seek advice from a trusted mortgage advisor, to see what you can and cannot do. Here are a few of the most popular options.
- Increase your payment schedule.
- Make lump sum payments.
- Shorten the time frame of your loan.
- Increase your payments
- Refinance at a lower interest rate, but pay the same amount each month.
To pay off your loan quicker you can make extra principal payments on your loan each year. You can do this monthly (which is the most beneficial) or you can do it bi-monthly, once per quarter, every 6 months or just 1 time per year. There are some people who apply their income tax return each year to their mortgage to pay it down and pay it off quicker. Others make extra payments every time their bonus comes in from work each quarter and yet some just make a $25, $50, or $100 extra payment to their mortgage each month so that they will have their home mortgage loan paid off faster.
You can pay off your mortgage quicker by signing up for a biweekly or accelerated mortgage payment program. This will allow you to make 1 extra payment per year and will end up saving you thousands of dollars in mortgage interest while cutting years off of your loan. These programs are most beneficial on a 30 year mortgage and you can cut up to 8 or 9 years off of your loan by getting on a bi-weekly or equity accelerated mortgage program. These programs will not only help you save a lot of money and cut the term of your loan down but they will also help you build equity into your home faster and lower your effective rate.
Payments on Interest Only loans build no equity. One way to help pay off the mortgage quickly is to put the savings from the interest only payments into an bank account or other investment that earns a higher rate of return than your mortgage interest rate.
If you decide to go with a bi-weekly payment make sure to ask when the payment is posted as many mortgage companies will post the payment only after a full payment is submitted. They may also charge you a fee to do a biweekly mortgage payment so ask your mortgage professional for all of your options.
Just making that one extra payment a year on a 30 year loan can, in most cases take 10 years off the life of the loan.
Making a 13th payment towards principal reduction every year shortens a 30-year fixed rate mortgage by about 5 years. If the monthly payments are set up to include the escrows of homeowner insurance payments and property tax, then depending on the amount of the escrows, the homeowner can pay off a 30-year mortgage even sooner. One should always check the mortgage statements to ensure that the extra payment is applied to pay down the principal, as some banks would to apply the extra payment towards the next payment due and simply not bill the homeowner for the next month.
Refinancing into a 15 year loan will force you to make higher payments. However it will also force you to payoff your house faster!
Other sites: Mortgage Broker | MIP | Reasons Loan Applications Are Rejected | Closing Costs | Why should I refinance | Fixed-rate mortgage | FSBO| Pay Option Arm Calculator
Jan
1
FHA
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Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.
FHA loans also have no prepayment penalty. Qualifying guidelines assist the average buyer in each particular marketplace. Some underwriting guidelines are less restrictive than those of conventional fixed-rate loans, and can vary based on the marketplace. The lender is insured against loss for the life of the FHA loan. It is possible to place subsequent mortgages after an FHA first mortgage.
The seller or other third party is allowed to pay part of, or all of the closing costs associated with the loan. FHA loans are assumable, but the assuming party must qualify. Any FHA loan originated prior to December 1, 1986, are simply assumable. Meaning the purchaser does not need to formally qualify for the loan. Loans are assumed at the note rate under which they were originally originated. The exception being on ARMs, in which case are assumed at the loan’s current interest rate.
Now looking at the down side of the FHA loan. This type of loan can cost the seller more money in the form of non-allowable. Non-allowable are fees FHA will not allow the borrower to pay such as a processing fee etc… This may not be a deal killer by any means but it is something to take into consideration when writing the offer on the home you intend to purchase.
A FHA mortgage is when the government guarantees Federal Housing Authority loans. You can put down a smaller down payment on a FHA loan, but you will also be required to pay mortgage insurance.
What are the advantages to using FHA financing? There is a low down payment requirement. The down payment is 3 percent, up to the maximum loan amount allowable in your particular region. The entire down payment can be gifted or borrowed from a relative (on most other loans the down payment must be sourced and seasoned).Unlike conventional loans, there are no reserve requirements of two months’ PITI payments at closing. The interest rates are typically lower on FHA loans, than what they are on conventional fixed-rate loans.
FHA loans have lower maximum loan limits compared to that of conventional mortgages. The maximum loan limits vary county by county and are adjusted every year to reflect increasing home prices. FHA loans are not for every one in that the loan limits are too low for higher price properties and that the application process takes longer than conventional mortgages, so in a hot real estate market where houses receive multiple offers, buyers using government loan often lose out to those using convention mortgages.
For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.
Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income. Long term debt includes such things as car loans and credit card balances.
Your FHA loan will also carry Private Mortgage Insurance (PMI). The PMI payment is lower than what it would be if you had a similar conventional loan scenario. Unlike conventional loans, the PMI will remain with the FHA loan for the life of the loan.
Federal Housing Administration Loan. This loan is issued by the Insuring Office of the Department of Housing and Urban Development.
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Escrow account
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A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
You can choose to waive escrow and pay your insurance and taxes on your own. Lenders will usually charge a small fee for waiving escrows. You may also here the term escrow used for a different account. This would be the escrow account where your earnest money would be held until the closing. Usually the title company or closing attorney will hold these funds.
Escrow accounts can be great for borrowers with little or no savings so that when these items become due they are not responsible for the lump sum payments.
Most lenders require escrow accounts unless you have a 20% down payment.
Banks “escrow” property tax and hazard insurance premium payments to protect the banks’ interests. In the event of a foreclosure, the mortgagee’s lien takes priority over all other claims, EXCEPT for government tax liens. If the homeowner does not purchase hazard insurance, the home is not covered against catastrophic loss. In the event of a catastrophe that causes damage to the home, and the homeowner is financially unable to make repairs, the value of the home will decrease. Therefore, banks will require the homeowner to put sufficient monies into an escrow account from which the bank will make property tax and insurance premium payments, on behalf of the homeowner, when they become due.
When you buy a house, you will probably have an escrow account with the lender. The amount of money you pay each month, has extra above what would be required for just your principal and interest. The extra money is held in your escrow account to pay property taxes and insurance when they come due.
The escrow holder is required to safeguard the funds while they’re in their possession , and to disburse funds or convey title, only when all requirements of the escrow have been met.
Some lenders require Taxes and Homeowners insurance to be escrowed as a safeguard to protect the lenders interest in the property.
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