|Mortgage Refinance Information|
Mortgage Terms Explained
When you are hunting for a mortgage, you will find that there are many different types of mortgages available. I will list some of the more common ones and their uses.
15 vs 30 Years
Your mortgage term can be just about anything you choose. 15 and 30 year terms are popular these days, although 10 and 20 years also are available.
The shorter the term, the lower the interest rate. But the main attraction of shorter term mortgages is the money you save.
For example on a $200,000 mortgage with a fixed 4.5% rate, you would pay $1013.38 a month for 30 years and $1529.99 a month for 15 years. Over 30 years you would pay $364,816.80 versus $275,398.20 over 15 years, a savings of $89,418.60 or 24.5% in interest.
If you cut a very conservative quarter of a percent off for reducing the lenders exposure by 15 years, your savings will be nearly 26%.
Adjustable Rate Mortgages (ARM )
ARM's are mortgages whose rates adjust according to the terms of the contract you made with the lender.
Usually interest rates are fixed for the first 1, 3, 5, 7 or 10 years. After that period is up, rates will be allowed to fluctuate within the limits of your contract with the lender.
Terms are usually 15 or 30 years (although you can negotiate just about any duration you want). There can be a balloon involved.
Because the lender is not taking as big a risk on losing money if interest rates rise, these loans will have a lower initial rate than a fixed mortgage. The lowest rates will be for 1 year ARM's and will go up accordingly.
Many people will take out an ARM even in period of low rates, such as now, because they get even lower rates and are able to afford more house. However, the borrower is taking the risk that he can still afford the house after the rates are free to rise.
It used to be common for the contract to limit fluctuations to 2% a year. However, 5% swings are becoming more the norm. Depending on what happens to interest rates, you might find yourself priced out of your house. Of course, you could renegotiate if rates start to go back up.
The average homeowner owns his or her house for approximately 7 years. If you plan to move before the initial fixed term of the ARM is up, it's a good choice. If you plan to stay longer than ten years, a fixed rate might be a better option.
A balloon mortgage is one that is not completely paid off at the end of its term.
For example, you might obtain a 15 year fixed rate mortgage that allows you to pay less than the normal amortization schedule would call for. At the end of the 15 years, you will still owe a portion of the principal. How much depends on the terms of the contract.
An interest only mortgage is an example of this type of loan. In the case of an interest only loan, the balloon will be the full amount you originally borrowed.
This type of mortgage allows borrowers either to afford more house then they otherwise could buy or its reduces their monthly costs, allowing them to spend or invest their savings elsewhere.
Again, if you are planning to move before the balloon is due and your proceeds from the sale are enough to cover the balloon, this might be a good idea. However, you face the very real possibility of having to come up with cash when you sell to cover the balloon, especially if you have to sell at a time of declining housing prices.
A biweekly mortgage is one where pay half of the normal mortgage payments every two weeks. Since you are making 26 payments a year, rather than 24, you wind up paying off the interest sooner and saving considerable interest.
Take the example of a $200,000, 4.5% fixed rate mortgage with a 30 year term. The normal payment would be $1013.37 a month.
The biweekly amount is $506.91. But the payoff is huge. Your loan will be paid 5 1/2 years earlier and you will save 28% or $32,639.75 interest.
You can set up your own biweekly mortgage plan with your existing mortgage, assuming there is no prepayment penalty (which usually only applies the first few years anyhow). Simply send in or have your bank debit your checking account for one half your mortgage payments every two weeks. There should be no extra costs or fees to do this.
Or you can reach a similiar result by dividing your monthly payment by twelve and adding that to your payment. In this example that would come out to be an extra $84.44 a month.
The secret is that any prepayment, no matter how small will result in saving in interest and a shorter payment period.
Bridge loans are used in real estate transactions to cover the down payment on a new home, when the borrower has equity in his old home, but not enough cash.
It is generally a short term, interest only loan that is repaid when the homeowner sells his old house.
Most mortgages are conventional, the terms just vary. A conventional mortgage to most people is a 15 or 30 year fixed rate mortgage with at least 20% down.
These are really loans that carry a higher interest rate than a normal mortgage. They allow you to borrow the money to build a house and are converted into a mortgage once the house is finished.
FHA (Federal Housing Administration)
The FHA is a branch of the Housing and Urban Development (HUD) Department. It is a depression era creation, meant to make it possible for people to buy homes at a time when banks where not granting mortgages.
The FHA insures loans up to certain set amounts, which vary with the region of the country and the type of loan. Right now the guarantees run from about $160,000 for a one family house to somewhat over $300,000 for a four family home.
This type of mortgage is designed to help low and moderate income people become home owners. It requires low down payments and has flexible lending requirements.
If the borrower defaults, the government steps in and pays the guarantee. This makes it easier for lenders to write mortgages they would otherwise refuse.
Fixed rate mortgages have interest rates set for the term of the mortgage, which can be anywhere between 5 to 30 years.
Although they can be interest only or have a balloon, they usually are conventionally amortized mortgages.
At times like now, when rates are low, most homeowners want to lock in the low fixed rates. They are popular when rates are falling, not so popular when they're high or going up.
This type mortgage is a very good idea if you're planning to live in your house for a while.
Home Equity Line of Credit
A revolving credit line secured by your home. Because it is a mortgage, it carries a lower rate than other forms of credit and is tax deductible.
It differs from a second mortgage in that it is not for a fixed term or amount and can be kept in effect as long as you own your home.
This is used most frequently for debt consolidation and can be useful if you rip up your credit cards and use the money you save on interest to invest.
Interest Only Mortgages
This is just what it says. You only pay interest, the principal is never reduced.
This is the grand daddy of all balloon mortgages and you taking a big risk that your house depreciates in value rather than the other way around.
You could very well have to come up with extra cash at closing.
The payments are much lower than on a normally amortized mortgage and if you have the discipline, it can be a useful financial planning tool.
Mortgage loans over $322,700 (the limit is periodically raised). Otherwise, the mortgage can be fixed or variable, balloon, etc.
Rates are usually a little higher than for smaller loans.
No Doc or Low Doc Mortgages
This refers to the mortgage application, not to the mortgage itself. Business owners, people living off investments, salesmen and others whose income is variable might use low or limited documentation mortgages.
Very wealthy borrowers or those who want substantial financial privacy will sometimes use the no doc option.
In either case, in spite of their names some documentation is required. The lender will accept nothing less than excellent credit and even then you will pay more for the privilege.
No Money Down Mortgages
These come in two flavors: FHA type loans that allow low or moderate income borrowers to buy a house with little or nothing down and the 80-20 plans, where wealthier borrowers with little money saved up finance 100% of the purchase price.
Under the 80-20 plan a first and second mortgage are issued simultaneously. The borrower avoids having to buy mortgage insurance. The two loans are designed to cost less than an 80% loan plus the insurance, otherwise they make no sense.
If the borrower puts some money down, you will see the mortgage referred to as 80-10-10 (the last digits will be the percent of down payment) or some similar number.
It is mostly used by borrowers who haven't saved enough for a down payment or by those who have the money, but would rather use it for other purposes.
This technically means getting a new mortgage at different, hopefully better terms. A lot of people use it interchangeably with obtaining a second mortgage or line of credit; in other words tapping into the equity of their house.
Secondary financing obtained by a borrower.
They can be fixed in amount or take the form of a Home Equity Line of Credit, which is simply a revolving credit line secured by a house.
Homeowners use these forms of financing to consolidate bills, do home renovations, put their kids through college, etc. They are tapping into the equity they have in their house to use for other things.
This is not necessarily a great idea. You must take firm control of your finances when you start doing this or you risk either losing your house or having to raise cash to pay the mortgages off when you sell.
If done properly, you can pay off your debt at a lower, tax deductible rate and invest your savings.
VA (Veteran's Administration) Mortgages
The VA provides mortgage guarantees to active duty and ex-servicemen who meet certain eligibility requirements. (To read the requirements click here.)
Like with FHA loans, the government guarantee makes it easier for low and moderate income veterans and active duty service personnel to obtain mortgages.
The current VA guarantee is $89,912. It is raised periodically.
If you want to bet house prices will rise, some lenders will lend you up to 125% of the value of your house. If you're right, you're okay. Otherwise be prepared to have your checkbook available when you sell your house.
I'm sure that there are other financing options available that I haven't covered and don't even know about. But most of the main financing types are here.
Chris Cooper is a retired attorney who is very familiar with debt, being in it too many times in his life. These articles pass on some of the knowledge he has gained striving to become debt free. He is editor-in-chief of http://www.credit-yourself.com a website devoted to debt management
Home Mortgage Loans For People With Bad Credit
Getting a home loan with bad credit has actually never been easier than it is today. Here are some tips to help improve your chances of success:
Stated Income Mortgage Loan - Get Approved Online
A stated income or no doc mortgage loan allows individuals with difficult to document income to buy a home. With a documented credit score and reasonably stated income, you can qualify for a mortgage at a slightly higher rate. Online mortgage lenders allow you to easily compare rates on stated income mortgage loans, guaranteeing that you get the best rate.
Should You Get an Interest-only Home Mortgage?
Before you consider taking out an interest-only mortgage, you should first understand what they are. Unlike traditional, fixed-rate mortgages, interest-only mortgages allows the borrower to initially pay the interest on the principal for a short period of time, rather than making payments on both the principal and the interest. This is how it works: say, for example, you've taken out a mortgage for $100,00.00, which would require a monthly payment of around $1,000.00. However, with an interest-only mortgage, the same payment would only amount to around $695.00. You could use the extra money to pay existing debts, like credit cards or student loans, or perhaps invest it.
When Not To Agree To A Home Equity Loan
Before you borrow money on your home's equity, think twice so you don't end up paying more than you expected.
Before You Buy
Before you start looking for a home, figure out what you can realistically afford to pay per month. Check out the market in the area you want to buy. Find out what price houses are going for and what the payments are per month. Remember that you may end up paying a little more per month than someone with a conventional bank loan, so keep that in mind as you figure out what you can afford.
Home Equity Loan ? Beware of Equity Stripping Scam
The market for mortgage refinancing has been brisk during the last few years. The boom in business can be attributed to interest rates that have been at or near historic lows, and to lenders who have more money to lend now that they aren't investing in risky tech stocks anymore. Low rates and agreeable lenders are certainly good for consumers who might be interested in refinancing their home or taking out a home equity loan. Those considering such loans should be aware that the booming market for refinancing has led to increased competition among lenders. And when the competition increases, so does the number of lending scams.
A New Choice for Home Financing: Correspondent Lenders
When you begin your search for a new home loan, one of the first things to consider is where you'll get the money. Your basic choices will be mortgage brokers and banks.
Online Mortgage Brokers - What You Might Not Know About Home Loans & The Internet
You may think that applying online for a mortgage is the same as applying with a broker in the 'real world', only more convenient.
Self Employed Mortgage Loans - A Survival Guide
When you're self employed you have numerous advantages. As you are a free agent, you will write off every deduction you can on your tax return. You acquire the potential to earn extra income much more so than someone who is employed by someone else. The best part is that you are the gaffer, the boss! On rare occasions, being freelance has some drawbacks. One is when you go to get finance for a property or a large purchase. However, here are some items to know that could help you prepare for the mortgage loan process. A self-employed mortgage loan survival guide, if you will.
Home Equity Loans Popular Scams
Most borrowers fail to realize that when trading their much beloved home for cash, lenders can foreclose on their property in the case of default. Moreover, because of fly-by-night operators who are ready to strip unsuspecting borrowers of their most prized asset, it is doubly necessary that borrowers be familiar with some frauds that could be perpetrated on them.
Refinancing Your Home - How and Why?
Chances are you may need a little extra money to get some work done around the home or perhaps your current interest rate is 7.5% and the prime interest rate is 6.0% there is a benefit to restart the clock on an existing mortgage and save thousands of dollars over the life of the loan. The first thing you must realize is that refinancing your home can also be tax deductible, meaning that you will receive an extra tax advantage for the closing costs associated with a refinancing no matter what the condition, even in bankruptcy!
Home Loan Confusion Continues
Unfortunately, most Americans still do not understand how home loans work and how to take advantage of the wide array of programs available. The way I see it, people are still confused about mortgages in general and real estate finance, in particular.
Are Biweekly Mortgages Really Worthwhile?
You may have heard people, especially mortgage lenders, extolling the virtues of biweekly payments, saying that you can save thousands of dollars and take 5-7 years off your mortgage--and then offering to set up a biweekly plan for you for as little as $400. But you don't have to spend $400 to begin saving money and time on your mortgage. In fact, you don't have to spend anything at all! You can set up a money-saving mortgage payment plan yourself--easily and at no extra cost.
Home Equity Loan ? Good Choice for Luxury Purchases?
Home equity loans or lines of credit have increased dramatically in popularity in recent years. One of the reasons is that interest rates are at or near historic lows; borrowing money has rarely been more affordable. Another reason is that Americans are enjoying record amounts of equity as home values have skyrocketed in recent years. Given that the loans are affordable and the equity is available, many homeowners are wondering if a home equity loan would be a good way to finance expensive lifestyle items. Would borrowing against your home be a good way to purchase that Dodge Viper you've always wanted? How about that around the world cruise you have always dreamed about? Is taking out a home equity loan for luxury purchases a good idea?
Save Yourself from Homebuying Disasters
Whether you are a first time home buyer or a happy home owner who wants to refinance an existing home loan, there are some cardinal "dos" and "don'ts" to follow. For many, home ownership is the biggest investment in their lives and that could be the reason why some people act irrationally, as if they purposely want to sabotage the deal. Follow these simple rules and you will be sure to make your experience difficult and unpleasant, if not a complete disaster.
Home Equity Loan ? A Reverse Mortgage Could Provide a Comfortable Retirement!
While only comprising about 1% of all mortgages, the reverse mortgage has gained in popularity in recent years. Federally insured since the late 1980's, the reverse mortgage allows owners of paid-off homes to borrow against the equity in their homes in the form of a lump sum, a line of credit, or in the form of monthly payments. The loan is repaid when the owners die or when the home is sold or no longer occupied. In the early years of its existence, the reverse mortgage was regarded as a "last resort" step to avoid foreclosure, pay medical expenses or keep the home from disrepair. More recently, however, retirees have been finding creative ways to use the equity in their homes to allow their retirement years to be more enjoyable. The huge growth of the housing market during the last five years has left millions of homeowners with large amounts of equity in their homes. Californians who bought homes in the early 1960's at modest prices are now retiring; many of them have home equity in the mid-six figures. With that sort of equity, homeowners are using their equity to buy recreational vehicles, boats, luxury vacations, and even second homes. The structure of a reverse mortgage makes it possible for some homeowners to pay cash for a vacation home, while continuing to live in their primary residence for as long as they like, or are able. Once they die, the primary residence would be sold to pay pack the loan, while the second home would become part of their estate.This has provided a rare opportunity for many couples, who struggled to raise families and pay mortgages during the working years, to enjoy a few luxuries in their retirement years. Couples who could never afford to travel can now dip into their home equity and see Europe or take that cruise that always eluded them.While this may seem like a win-win situation for all involved, those in the lending industry express caution. For most people, the equity in their home is their single largest asset, and borrowing against it should done only after careful consideration. What if a lengthy hospital stay became necessary? Would the homeowner have sufficient funds to pay for that after buying a second home through a reverse mortgage? What if a husband or wife became incapacitated and required permanent housing in a nursing home? These are things that must be considered before using home equity for a houseboat or RV, and those considering such a move should consider discussing their plans with a financial advisor.Despite the potential drawbacks, the use of the reverse mortgage to fund a fun and adventurous retirement seems to be growing. With interest rates still near all-time lows, the trend will almost certainly continue in the near future.
Hard Money Loans - Reasons Why You Might Want To Try Applying With A Subprime Mortgage Lender
Before you apply for a hard money loan, try applying with a subprime mortgage lender first for lower rates and fees. Hard money lenders charge excessive fees to high-risk borrowers, but will only lend 50% to 75% of the value of the property. On the other hand, subprime lenders offer loans to similar high-risk groups, but with better terms.
Private Mortgage Insurance (PMI)
If your down payment on a home is less than 20 percent of the appraised value or sale price, you must obtain private mortgage insurance, known as PMI, with your lender. This will enable you to obtain a mortgage with a lower down payment because your lender is now protected against any default on the loan.
Mortgage Free In 15 Years!
Imagine paying your mortgage off in 15 years! Think of all the great things you could do with that extra money. What would you do? Retire early? Buy an R.V.? Travel around the world? If you could eliminate your mortgage in half the time, then your options would be wide open.
Refinance Your Mortgage to Rebuild Credit
Refinancing your mortgage is one way to rebuild your credit, particularly if you have recently declared bankruptcy. With a poor credit history, you can find refinancing through a sub prime lender. To rebuild your credit, make regular payments on your mortgage and other bills. Then after two years, refinance again for lower rates with your now good credit rating.
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