Should You Refinance
Posted by admin on Aug 11, 2009
The end of November, the average interest rate on a thirty year fixed rate mortgage was around 5.5 percent. It was the biggest drop in a week since the 1970s. There are plans for the Treasury Department to lower rates to 4.5 percent for those purchasing homes, and may extend those rates to homeowners wishing to refinance. Many homeowners are jumping on the bandwagon to refinance. It was reported the week after Thanksgiving that applications to refinance mortgages were up 200 percent from the week prior. Many who have chosen to recently refinance are trading in an adjustable rate mortgage for the peace of mind of a fixed rate mortgage. Others wish to refinance to simply get a better interest rate or terms to save money on their monthly payments. The rates may be enticing, but banks have also tightened their lending practices. That means that many who applied to refinance were not approved. To qualify for the lowest rates, consumers must now have excellent credit scores and must put in a bigger downpayment. Additionally, a growing number of homeowners no longer have enough equity in their homes to refinance, due to drops in home values.
The low interest rates will continue to entice consumers, particularly those looking to refinance. While many mortgage holders are grabbing the current round of low interest rates, others are waiting to see if the rates will drop further. Just as rates go down, rates can go up and you could miss a golden opportunity to refinance. Many financial experts think that if you are considering a refinance, it would be wise to take the current low rates. If you are wondering if a refinance makes sense for you, the simplest thing to do is calculate your savings and costs for the time you plan to hold the mortgage. Subtract the estimated new monthly payment from your current monthly payment to determine how much you would save each month under the new rate. Then, add up all the costs of the refinancing. Lastly, divide the total cost of the refinance by the monthly savings to figure out how many months it will take you to actually start saving on your monthly payments. That total number of months is known as the “break even point.” If you think you are going to sell the house before you reach that break even point, then you may not want to refinance. Say, for instance, your break even date would be 18 months from the time of your refinance. If you expect to sell the house in a year, then the refinance may not be a good financial move.
It is hard to predict what will happen with mortgage interest rates. If you plan to refinance, consider taking the opportunity to do so under the current low rates before they go up again.
Refinancing a Home Mortgage
Posted by admin on Jul 28, 2009
The end of March, consumers were delighted to see the interest rate for the average home mortgage still at historically low levels. The Federal Reserve made a decision to keep rates low and many analysts expect them to stay fairly low for the remainder of 2009. Given the shaky state of the economy and the increase in unemployment, low rates have been the one shining light for those considering buying a new home with a home mortgage and, particularly, for those wishing to refinance. The one hiccup for some borrowers has been the tighter standards lenders now have in place. Borrowers must now have higher credit scores and put down larger down payments to qualify. Because of those requirements, less people who apply for a home mortgage are actually approved. Homeowners looking to refinance are under the same scrutiny. Many lenders are now requiring at least 20 percent equity and a credit score of 700 or higher to qualify. The biggest hurdle for applicants in the areas of the country where values have dropped the most is having enough equity. Part of the new stimulus plan introduced by the Obama administration is designed to help those who keep up with their mortgage payments, but whose home values have dropped so much that they now have little or no equity. But those who owe more than 105 percent of the value of their home will not be eligible for a refinancing under the plan. Those who have at least 5 percent equity in their homes will qualify.
Some consumers think the home mortgage rates will decrease even more, so will wait to refinance until then. They may be right and snag an even lower rate in the future, or wish they would have grabbed the lower rates. As home values are predicted to continue to fall, homeowners who wait take on the risk that the equity in their homes may decrease if the values decline more. Those who are looking into home mortgage refinancing now with the low rates should make sure the benefits outweigh the costs for their particular situation before jumping in. Knowing all the costs of the refinancing is essential. Many people simply look at the savings differential between their interest rate and the new lower rate and forget to consider the actual costs of refinancing. For those who will be able to break even and begin to reap the benefits of the lower monthly payments before they plan to sell their house, refinancing is generally a sound financial decision.
Home Mortgage Types: Reverse Mortgages
Posted by admin on Jul 18, 2009
Do you have significant equity tied up in your home mortgage? Do you need a new source of income? And are you at least 62 years old? If you answered yes to all three questions, you should give serious thought to a reverse mortgage. In a reverse mortgage, a lender makes reverse home mortgage payments to you out of the equity you have invested in your house. You may choose to get the value of your property in monthly payments or in a lump sum. You are allowed to remain in your house until you move away, enter a retirement community or nursing home, or pass on.
Will a reverse mortgage cancel out any other home mortgage I may have?
No, but the proceeds of the reverse mortgage will pay off the remainder of your home mortgage. In some areas, homeowners are not allowed to have both a regular home mortgage and a reverse mortgage on the same piece of property. If you live in one of those areas, you will be required to put your reverse mortgage payments toward your home mortgage, and will not be able to use the income for other purposes until your mortgage is paid off.
If I take out a reverse mortgage on my house, can I still leave the house to my heirs?
Yes. Your heirs may repay the value of the reverse mortgage, attempt to sell the house to cover the cost of the reverse mortgage, or let the bank or other lender resell the house itself. It is possible for your heirs to cover the cost of the reverse mortgage, effectively taking out a new home mortgage on it. However, taking out a reverse mortgage strongly decreases the likelihood that the property will stay in the family. Consider a reverse mortgage only if passing on your house to your heirs is not important to you.
What happens if the lender finishes making all the loan payments during my lifetime?
If you take the value of the loan as a series of payments, and you receive the last payment (that is, the full value of the house) well before you plan to leave the house, you are not required to give your house to the lender and leave. You may keep the money and continue to live in the house for as long as you need or want to. Staying in the house will not create a debt for you, your heirs, or your estate. In fact, it is not possible for a reverse mortgage to put you into debt. This is one of several points that makes reverse mortgages more attractive than a regular home mortgage.
Home Mortgage Questions and Answers Guaranteed
Posted by admin on Jun 22, 2009
For most people, raising the money for the 20 percent down payment that is typically paid on the purchase of a home doesn’t come easy. Fortunately, lenders today offer many low down payment mortgages. But when deciding how much to put down, you should consider the following: Is 20 percent the standard down payment?
The fact is that most mortgage lenders do require you to make the 20 percent down payment at the minimum. If you put down less than 20 percent, most lenders will require you buy Private Mortgage Insurance (PMI). The cost of PMI is usually equivalent to one half of 1 percent of the selling price of the property, and is intended to protect the mortgage company if you are unable to pay back the loan. Your overall mortgage costs will therefore be less if you come up with 20 percent down and can avoid having to pay PMI.
What if you put down less than 20 percent? If you can’t afford a 20 percent down payment, paying PMI may be your best option. The good news is that you may be able to get the mortgage lender to cancel PMI when you attain 22 percent equity in your home, or even 20 percent equity if you have a good record of making payments.
Another option available to you is securing an 80/10/10 loan. This type of loan will save you from having to purchase PMI by paying half of the 20 percent down payment with another mortgage plan. 80/10/10 loans work on the principle that the bulk of the selling price of the home is paid for through the first mortgage, with 10 percent being paid off with a down payment, and the remaining 10 percent being paid off with another mortgage. You may also pay off the 20 percent down payment with an FHA loan that you secure from the government. Again, you will have to pay for insurance, but you may qualify with a down payment as little as 3 percent.
What about putting down no money at all? It is possible to finance 100 percent of the purchase price of a home with a mortgage that requires no down payment at all. The downside is that these types of financing plans will entail much higher interest rates than typical mortgage arrangements. This will of course result in higher monthly payments for you. Furthermore, you will still be required to purchase PMI since you were not able to pay the required 20 percent down payment.
Let’s review the options. When deciding how much to put down on a home, it’s important to know what your options are so you can decide what works best for you.
Q: Would you prefer getting instant equity in your home and lowering your monthly mortgage payment?
If so, paying the 20 percent down payment is your best alternative.
Do you want to save on paying PMI costs but are unable to raise the 20 percent down payment?
An 80/10/10 loan may then be your best option.
Do you want to buy a home as soon as possible in order to avoid the rising costs of home purchase but can only afford a 3 to 5 percent down payment?
An FHA loan secured from the government may then be your best course of action.
Q: Do you have no savings at all but are so eager to enter the real estate market immediately that you are willing to pay the extra costs involved in a no money down mortgage?
A: Provided you are able to handle the required payments and are confident your financial situation will enable you to refinance for a mortgage with better terms in the future, it could be the way to go. The important thing is to evaluate your own situation carefully before you decide how much to put down on a home.
Mortgage Loans: Improve Your Credit Score, Get a Better Mortgage
Posted by admin on Jun 17, 2009
When you need to qualify for mortgage loans, a poor credit rating is a problem. Your fees and interest rates will be higher, making your mortgage more costly, and your credit rating will act as a beacon for predatory lenders. Before you give up, accept whatever you’re offered, and wind up saddled with mortgage loans with restrictive riders and high interest rates, take a time out and raise your credit rating. Then try the market again, and see how much your offers improve.
Taking these actions will improve your credit rating and make you more attractive to mortgage lenders:
* Lower the amount of money you currently owe. The amount of your debt payments should be 40% or less of your monthly income. Debt payments include all your credit cards, any student loans you still have, your auto payment, and all mortgage loans you are paying. Lenders will also consider the amount of the loan you are requesting when they calculate your debt to income ratio, so also swap out your current mortgage and swap in your prospective mortgage (or add in your prospective mortgage, if you do not have a mortgage right now) and make certain the number is still 40% or less of your income.
* Improve the ratio of credit you have available to credit you have used. The more credit you have available, and the less you have used, the better your score will look. Improving the ratio involves not only paying down your existing debts, but getting new credit if you can. if you have a good relationship with your credit card companies, call them and ask whether they will raise the credit line on your existing credit cards. If you have a credit score that will allow you to take out new credit cards, apply for a new credit card. And leave unused accounts open! Common wisdom used to say that creditors should close unused accounts, but now this tactic worsens your credit score by lowering the amount of credit you can command.
* Examine your credit reports closely and dispute any black marks on your record that are inaccurate or incorrect. You may find that clearing up mistakes and misunderstandings will do wonders for your credit record.
* Let time do its work. Your credit rating is partly a function of time. The more time you spend paying your bills punctually and avoiding trouble, the less you are perceived as a credit risk. Lenders will consider you to be more stable, and thus more appealing, when you reapply for mortgage loans.
Applying for mortgage loans with good credit is difficult enough. Bad credit can make it into agony. Before you apply for mortgage loans, tidy up your credit reports and improve your credit score, and make the process that much easier and more successful for yourself.
What To Look For In A Home Mortgage
Posted by admin on Jun 9, 2009
As far as purchasing your dream home is concerned, finding the ideal one is only the first step in what can be along journey. The next concern is looking for a home mortgage that will help you pay for your home. Ideally, you will want a home mortgage that comes with payment terms that you can easily afford to pay off every month. With the many home mortgage plans out there nowadays, you certainly have many options available to you, although it is important to know what to look for.
A good place to begin your search for a home mortgage…and indeed where most people think to ask first…is at your bank. This is not the only option for securing a home mortgage by any means however, and there are quite a few other worthwhile options to consider. Other places where you can secure a home mortgage are savings and loan associations, other commercial and mutual savings banks, and of course, mortgage companies. It is important to realize however that all of these lending institutions will have different rates as well as mortgage terms.
The Internet is also a good source for detailed information regarding home mortgages. There are literally hundreds of web sites out there that provide information about rates, lenders, and some even allow you to file your mortgage application online.
You will also want to find out if the home mortgage loans offered are insured by a private entity or by the federal government. Many home mortgage lenders offer loans that are insured by the federal government office. Among the most common types of home mortgage loans in this category are FHA loans and VA loans, which are supported by the Federal Housing Administration and the Department of Veterans Affairs respectively.
Another important consideration is whether to go for a conventional home mortgage or to instead opt for a government insured home mortgage. The primary attraction of government insured home mortgages is their relatively low down payment, although they are typically available only for homes that have a lower value than the going market rate. You will have to decide for yourself whether this restriction is worth the lower down payment of a government insured home mortgage.
Different Types of Home Mortgage
Posted by admin on May 2, 2009
There is an array of home mortgages available to buyers. Even first time buyers can find a mortgage tailored to their needs. However, to pick the right type of home mortgage for you, you need to know what your loan options are. This brief guide will explain the most common types on the market today.
The interest rate on an adjustable rate mortgage (ARM) lowers and rises in tandem with fluctuations in the state of the economy. Your home mortgage’s interest rate rises if the prime interest rate rises, and falls if the prime interest rate falls. This lets you get the maximum benefit from periods of low interest, but also means that if the prime interest rate rises sharply, your interest rate and monthly payments will rise with it. Because the risk of rising or falling prime interest rates rests on you, not on the bank, banks offer lower introductory interest rates on adjustable rate mortgage loans than on fixed rate mortgages.
The interest rate on a fixed rate home mortgage does not change over the term of the loan; it is set, or fixed. This cushions you from the shock of skyrocketing interest rates, but also prevents you from taking advantage of falling interest rates. Banks expect that at some point during the term of your loan, the prime interest rate will rise above the interest rate of your mortgage, and the bank will be required to make up the shortfall itself. Because banks must budget for this eventuality, they offer higher interest rates on fixed rate mortgage loans than on adjustable rate mortgages.
A convertible home mortgage loan begins as an adjustable rate loan, but you have a period of time during which you are allowed to convert to a fixed rate. This is a good type of loan to choose if interest rates are high but are expected to drop. You can enjoy the comparatively low interest rate of an adjustable rate home mortgage, then lock in an attractively low fixed rate for the rest of the life of the loan.
A balloon home mortgage begins with an unusual introductory period during with you pay a fixed rate that is almost as low as that for an adjustable rate mortgage loan, instead of paying the higher interest rate of a normal fixed rate loan. However, when the introductory period ends, you owe the total unpaid balance of the loan. Balloon loans are ideal for real estate investors who plan to resell the property before the end of the introductory period, or for homeowners who plan to refinance within the next few years.
Mortgage Loans Drop for Tenth Week in a Row
Posted by admin on Apr 22, 2009
In an effort to breathe life back into the struggling real estate market, the federal government made a decision at the end of November to purchase $500B of mortgage backed securities. Consequently, mortgage loans have been offered at lower and lower rates. Freddie Mac starting tracking interest rates almost 30 years ago and the rates today are lower than they have ever been during that period. Lower rates seem to be the one silver lining for consumers caught in the economic downturn, particularly for those who could not afford to purchase a home during the run up in the housing market. The lower rates have encouraged some of those people to jump into the real estate market and take on new mortgage loans. And many current homeowners are refinancing original mortgage loans under the new interest rates. As a result of the credit crisis, however, lenders have adopted much stricter lending requirements than they had just a year ago. They now require higher credit scores and more equity, which means that many who may have qualified for refinance in past years may not qualify now. Many property owners in the parts of the country where values have dropped radically are struggling to meet the equity requirements for a refinance. The drop in values have left them holding less equity in their homes. Calculating the costs and benefits of refinancing mortgage loans, as well as examining credit files, credit scores and current equity should be part of any decision to refinance.
If you are considering refinancing, begin your research by finding out what rates and terms for mortgage loans are available to you. Then do some simple calculations to help you decide if refinancing makes sense for your current and future financial situation. The most common reason for refinancing is to bring down the payments on mortgage loans. To determine how much you would save, subtract the anticipated new monthly payment from the loan payment you make now. You will then need to calculate what the actual refinance will total. Just like when you obtained your original mortgage, you will have bank fees, documentation and title costs, attorney fees and appraisal costs. The next step is to figure out your “break even point,” or when you will actually start saving each month. You do this by dividing your total estimated cost for the refinancing by your estimated monthly savings. The number will be given in months. If you expect to sell the house before you break even, refinancing might not be the best financial move. If you plan to own the house past that break even point, then consider refinancing. If the calculations indicate savings for you, then you too could benefit from one of the new low interest rate mortgage loans.