Posts Tagged ‘Mortgages’

I Have To Build Onto the House for the New Baby

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November 13th, 2011

Advance Loan Finance What’s the deal with a Second Mortgage?

We’re having another baby and I have no solution other than to add a room to the house. I need to know all about second mortgages. I can’t afford to pay heavy fees and charges.

Check the Terms

Every lender is different, so do some comparison shopping. Run the figures and figure out which deal is best for your needs, not the needs of the lender. Compare several lenders, and ask them to make proposals based on your credit reports and financial situation.

Compare offers

Once you have various offers, sit down and assess the fees, terms, interest rates, and any other relevant data. A lower interest rate on a short loan may not be worth the higher fees, but it can make a big difference on a long-term loan. Pay particular attention to early payment fees, penalties, and other hidden fees.

Choose Carefully

If the sub-prime mortgage crisis taught us nothing else, it has made us aware that adjustable rate mortgages can be a real problem if you aren’t careful. Under most circumstances you will get better terms as well as consistency by applying for a fixed-rate loan. With interest rates at historically low levels, there is virtually no reason not to lock in. Discuss how long it will take to pay the loan, when, and how. Sometimes you can get an additional interest discount if you agree to have your payment taken out of your checking account automatically. Find out what other options you have to reduce your rates.

Negotiate

While a lender may try to make you feel as if they are doing you a favor by loaning you money, the fact is that you are the one doing the favor. Their income depends upon your interest. Just about everything can be negotiated, from application fees to rates and right on down to postage. Be aggressive but remain polite. Remember, the contracts are drawn up in such a way as to separate you from as much of your money as possible; your goal is to prevent that from happening. Being able to show other offers you received during your search will provide a good incentive for your loan officer to work harder for your business.

Specials

While it may seem strange to get a special on a loan, they do exist. From reductions in fees to discounts for applying online instead of in person, there is almost always a way to reduce how much you spend for your second mortgage application and process.

Hidden Savings

One of the advantages to taking a second mortgage instead of a line of credit or racking up debt on credit cards is being able to deduct your application expenses and interest payments from your income taxes. While this is certainly not a good reason to incur more debt, it can alleviate some of the stress involved in taking out a second mortgage. With good negotiation, proper arrangements, and an eye to the additional benefits of taking a loan instead of accumulating bad debt, it is possible to save money.

Tags: interest rates, Mortgages, Repayment terms, Second mortgages
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This Is the Right Time to Finance

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October 14th, 2011

If you qualify, here’s how

Mortgage rates are at their lowest levels ever, making this a great opportunity to refinance. However, those who want to refinance in today’s tough lending environment face hurdles. Credit scores must be higher than they used to be. Debt loads must be smaller. Employment must be documented. The biggest obstacle is a lack of home equity. Some people owe more on their mortgages than their homes are worth. They’re considered "underwater." Banks aren’t inclined to lend to them. But for those with stable jobs, extra cash, little debt and some home equity, low rates could allow for sharply reduced mortgage payments.

When refinancing is impossible

The lowest rates are generally reserved for those with credit scores of 720 or more, said Mark Goldman, a Southern California mortgage broker who lectures at San Diego State University. About 40 percent of US homeowners have scores that high.

You’ll also typically need at least 10 percent equity in your home. Depending on where your home is, the required equity might be as high as 20 percent. “Only the select few can qualify," said Goldman.

When to refinance

If you’ve been paying your mortgage for 15 years or more, it’s sometimes not wise to refinance. In the latter years of a mortgage, a larger portion of your payment applies to principal. That builds equity. If you refinance late in your loan and don’t reduce the loan’s duration from, say 30 to 15 years, you’ll build less equity. In some states, you might also face prepayment penalties if you pay off your mortgage early or refinance. In some cases, though, these penalties can be waived.

What you may need

Homeowners need to produce pay stubs and bank statements to document assets and income. Lenders generally frown on household debt that exceeds 45 percent of a family’s gross income. A solid credit score of at least 680 is also important, said Mike Anderson, a broker. That’s because lower credit are typically subject to higher extra fees. "Once you get below 680, it gets dicey," said Anderson. "With all the add-on fees, it may not be worth it." The low rates, if they can be had, can produce big savings. A homeowner would have to pay roughly $1,074 a month for a 30-year, $200,000 fixed mortgage at 5 percent. If that rate were cut to 4 percent, the payment would drop to $955. The savings would be $119 a month, or $1,428 a year.

What will it cost?

Homeowners typically pay a few thousand in closing costs. An appraisal fee can cost 1 percent of the loan value. Extra costs include application, inspection, notary and recording fees. These fees, called points, now average 0.8 point on a 30-year fixed mortgage. One point equals 1 percent of the loan amount. That means the 0.8 percent in extra fees on a $200,000 loan would run $1,600. An example of how fees can increase costs: This week’s average rate on the 30-year fixed mortgage is 3.94 percent. It’s the first time it’s ever been below 4 percent. But once extra fees are added in, the effective average rate rises to 4.12 percent.

Tags: Credit ratings, interest rates, Mortgages, Refinancing
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America’s Debt Hits The Ceiling. How’s Yours Doing?

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August 4th, 2011

How is your debt on a scale of 1 to 10?

The Bank of Montreal has issued five tips on how individuals can avoid hitting their own personal debt ceilings. Like Washington, many of us live beyond our means, with a quarter of us living paycheck to paycheck – a 10% increase over last year. The average household carries $75,600 in debt and 44 million souls rely on food stamps.

Don’t overspend and curb credit card debt.

These are obviously related. Overspending increases debt. It’s taken Uncle Sam decades of profligate spending to reach this crisis, but the average citizen can get deep into credit card trouble far more quickly.

Credit card limits

Individuals who hit their credit card limits should take it as a sign that their spending is out of control and start cutting back. Or they can raise revenues by getting a raise, finding a better paying job, moonlighting or running a business on the side. Maintaining or increasing spending without boosting your income means trouble. Too often, indebted consumers ask their financial institution to raise the limit on their credit card. The request is often granted because that’s how the banks make their money.

Financial destruction

But even if your card issuer refuses to raise your limit, debtors hellbent on financial destruction may apply for second and third cards, bypassing the safety mechanism of hitting the limit on the first card. Problems snowball if you pay only the suggested monthly minimum payment. The power of compound interest goes into reverse and you get in over your head, drowning quickly if unexpected job loss curtails your ability to meet even the seemingly low monthly minimums.

Mortgage free

Another tip is to become mortgage-free faster. This tip comes after curbing credit card debt, since mortgage interest is much lower than that charged by most credit cards. Credit card debt is considered bad debt because it involves spending on consumption. Mortgage debt is good debt because it helps you build equity while putting a roof over your head, and is tax-deductible.

Monthly payments

If the mortgage is large and monthly payments small, you pay more in interest than the house cost, meaning your effective home price is double or triple the asking price. The best mortgage is no mortgage at all and the way to eliminate one is to have high regular payments that reduce significant amounts of principal from day one. Take advantage of annual prepayment privileges and you’ll be amazed how fast your personal debt ceiling fades into irrelevancy. Once credit card and mortgage debt are eliminated, along with student loans and car loans, focus on becoming the beneficiary of compound interest instead of its victim.

Invest to save

BMO’s fourth tip is invest to save, ideally through tax-free savings accounts.

Plan B

The last tip is to have a Plan B. Unfortunately, too often the B stands for bankruptcy. This is invariably a disaster for consumers and as the world almost discovered the past week, a disaster for everyone if the government of the world’s largest economy goes bankrupt.

Tags: Credit card debt, Debt, Debt ceiling, investing, Mortgages
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