Archive for January, 2012
Much of this information regarding real estate/mortgage acceleration tactics may seem redundant to you. I am sure you have heard of many of these principles or strategies for paying off your mortgage early. There are pros and cons to paying off your mortgage early. Keep in mind most people keep a mortgage no longer than a few years. In fact the median time living in a particular piece of real estate is only nine years. Also the interest that you pay on your mortgage could be a tax write off you can take advantage of every year as well.
The mortgage acceleration strategies discussed in this article will pay off your mortgage on average of 3-10 years earlier. Well after any prepayment penalty that your lender may have set in place. Most prepayment penalties range from 2 to 3 years after acquiring your loan. So if you can pay off your loan in 2 to 3 years this article was not written for you.
Mortgage Defined
The word mortgage is derived from the two French words “mort” meaning death and “gage” meaning pledge. A pledge to death. So when you negotiate your way into a mortgage you are making a pledge to pay for the rest of your life.
Send in Extra Money…Blah Blah Blah
I have read and researched the articles that tell you to send in extra money every month and create a budget to pay off huge debts in a hurry etc, etc. What if you are not that well disciplined when it comes to budgeting. What if you are the person who is stretched to the penny when it comes to paying off bills and other monthly recurring debt? I read about one woman who sent in her tax return and scrimps every extra penny to pay down her mortgage. Personally I would like to leverage my money to the max so that I can still pay my bills enjoy my life reduce the amount of interest I pay every month without paying anything extra.
Understand Amortization
By understanding how the interest on your home loan is calculated every month you can mail your payment in early to decide how much of a savings you acquire on your interest. For example lets say you have home loan amount of $165,000 at a 7.00% interest rate. Most mortgage loans are amortized on a monthly basis. So using this example take $165,000 times the 7.00% interest rate = $11,550 in interest payments on your home for the first year. Divide $11,550 by 12 months = $962.50 of interest per month you pay on your home loan the first year. Now divide $962.50 by 30 days per month and you are paying $32.08 worth of interest per day on your home mortgage loan. If you send in your original loan payment in 10 days before the due date, 10 x $32.08 = $320.80 you saved by not paying one penny extra on your mortgage payment and just paying it 10 days early every month. You just saved yourself $3,208.00 in interest payments in your first year. Don’t take my word for it look at the difference on your mortgage statement every month this is the true deciding factor. Make sure your mortgage company applies the payment early so you do not lose the advantage of an early payment.
Pay Extra On Your Principal Balance
Should you be fortunate enough to fall into the category of people who can afford to send a few extra dollars every month here is a strategy that will shave off close to 10 years off of your mortgage term. Using the $165,000 example @ 7.00% your actual payment would be $1097 a month. Now remember $962.50 of that is interest. So that leaves a difference of $134.50. Send in your in January 1st payment of $1097.00 along with your February 1st payment which is only $134.50 because the interest on your February payment hasn’t had the 30 days of interest it needs to accrue. On the same or separate check make sure to notate the extra funds are to be applied to your mortgage principle. This strategy can be applied to car loans, credit card balances, student loans etc.
The following Mortgage Acceleration tactic was something I learned totally by accident when I had refinanced my home. I sent in 3 months worth of payments from leftover cash after closing the loan believing no payments would be due for three months. Since the loan had not began to Amortize (accrue interest), 100% of the proceeds went straight to the principal, because I sent in the payment 30 days before my first mortgage payment was due. In theory and in fact it would have taken me over 2 years worth of mortgage payments to pay off the amount of mortgage principal I had knocked off in less than 30 days!
Any one or a combination of any of these methods will allow you to pay down on your mortgage faster. To assist you in applying these tactics you can use the Home Mortgage Calculator to understand better how to leverage your dollars.
My next article will involve a breakdown of Closing Cost on a Home Loan.
A reverse mortgage is a loan that gives borrowers access to a portion of their home equity. The funds received through a reverse mortgage can be used to repay a borrower’s mortgage loan, renovate the home, or simply increase a person’s cash flow. While this unique financial product has been offered for several decades, these loans have become significantly more popular over the past ten years.
Qualifications, Limitations, and Loan Types
To qualify for a reverse mortgage, borrowers must be at least 62 years of age and own a one to four unit property that they use as their primary residence. Approved manufactured homes and condominiums are also eligible. If there will be two borrowers on the loan, both must be at least 62 years of age.
Borrowers must also own their home outright or have built a substantial amount of equity. The exact equity requirements will depend on the age of the borrowers. However, for borrowers to be approved, they must have enough equity in their home to pay off their mortgage loan with the cash they receive.
Reverse mortgage payouts are based on a borrower’s age, equity, interest rate, and the value of the property. Currently, the maximum payout a borrower can expect to receive from a federally-insured reverse mortgage is $625,500. This limit is honored regardless of whether a borrower owns a more valuable property.
The amount of money a borrower may receive will also depend on the loan product he or she chooses. Presently, over 90% of borrowers choose Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration. There are two different types of HECMs: the Standard and the Saver. The HECM Standard offers larger payouts, while the Saver offers much reduced mortgage insurance premiums. While both loans provide unique benefits, the HECM Standard will allow borrowers to access the most equity.
How one chooses to receive their cash will also affect the size of his or her payout. Consumers may choose to receive their cash as one large payment, monthly payments, a line or credit, or a combination of these options. Those who choose monthly payments will also need to decide whether they wish to receive fixed payments for a set term or until they leave their home.
The Benefits and Disadvantages of Obtaining a Reverse Mortgage
Due to their quick rise in popularity, reverse mortgages have been the subject of much criticism. Critics often complain of high fees and unsavory terms. It is true that reverse mortgages are somewhat expensive. However, many cash-poor seniors are willing to pay for the opportunity to tap into their equity, especially if it means staying in their home. It is also important to realize that most borrowers roll fees and closing costs into their loan, which eliminates the need to bring any cash to closing.
Reverse mortgages offer consumers a very unique opportunity. Instead of making monthly payments to a lender, these loans pay borrowers. Any funds that a borrower receives will not need to be repaid until he or she passes away, sells the home, or stops using the home as a primary residence.
Another benefit of these loans is that they are easy to qualify for. Seniors that depend on Social Security may not have enough income to qualify for a home equity line or second mortgage loan. Since lenders do not base eligibility on income, reverse mortgages are more available to seniors. While seniors should consider all of their options before taking a reverse mortgage, hundreds of thousands of borrowers have found these loans to be their most beneficial option.
Owning that first home can sometimes seem like an impossible goal. There are often many obstacles between a person and achieving that goal that they may end up losing sight of it. Many first-time homebuyers experience the same difficulties and challenges, and have to find a way to overcome them like any other obstacle in life.
The requirements for securing a first mortgage are fairly straightforward. Those who are trying to secure their first mortgage will need to have full-time employment, or another form of stable income. Banks will require you to provide proof of that income to them. A first-time homebuyer will also need to have a verifiable down payment. There is more than one option for what can be used for a down payment. It can be anything from accumulated personal savings, a gift from family, registered retirement savings, proceeds from the sale of an existing home, or sweat equity. What is important is that you can provide enough money upfront to secure the loan.
A good credit rating is essential in obtaining your first mortgage. Based on your credit score, banks will decide whether or not to approve a loan for your mortgage. Credit scores will also affect how low or how high the interest rate will be. This is why it’s necessary to plan ahead when deciding to buy a home, and to make smart financial choices along the way. Financial problems can arise very quickly, and often at no fault of your own. Still, you must be prepared to deal with them as they come, and know what to do if you end up in financial hardship. In some instances, it may be best to seek credit counseling to ensure that you are making the best financial decisions, so that your dream of owning a home doesn’t end up being more difficult than it needs to be. You must learn about your credit score, what it means to banks and lenders, and how to elevate it now so that it won’t hinder you in the future.
If you do have any outstanding loans or debts, it doesn’t mean that you shouldn’t be preparing for homeownership. Although most of your previous and current financial obligations should be taken care of prior to obtaining a mortgage, debt management is part of the same goal as buying your first home. Therefore, they should be treated as a common goal. It is beneficial to create a healthy dialogue between you and your bank, or any companies that you might owe money to. Maintaining an open and positive communication line is key to managing these obligations before they get out of your control.
A great deal of thought and preparation should go into buying your first home. You’ll need to set goals to save a certain portion of your income each month, and be sure to be consistent and stick to it. Pretty soon this will become a part of your personal financial management, and accumulating personal savings will become a natural habit rather than a forced effort. At first these adjustments can seem difficult if you are already pushing your budget each month, but small changes can yield large results. By simply paying closer attention to spending and saving, it is amazing to see just how quickly your bank account can grow. Many people are surprised to see how their needs can be met, and they can still enjoy their free time, have fun, and spend more time with the family, all while actually saving money. All it takes is prioritizing between your needs and wants, while consciously adjusting your saving and spending habits.
Unless you possess funds in plenty, you will require a home loan when it comes to investing in a house. You need to consider factors like interest rates and repayment schedule you need to follow. You are able to take the services of the mortgage broker, which could shop around for you personally so that you can obtain a most effective deal.
It is worthwhile pointing out that the fixed interest rate mortgage ensures that there is no fluctuation in the interest rate. On the other hand from the coin, there is an adjustable rate mortgage that generally begins with a lesser interest rate but there’s likely to be modification between the loans based on your mortgage structure.
You might also need an option of balloon payment. In balloon payment, you will notice that the first mortgage repayments aren’t much but then you need to pay a big payment after two or three years. Balloon payment is an ideal option for individuals that are likely to relocate a time of four to five years.
Make sure that you calculate well ahead of time how much amount you are able to pay on a monthly basis. Regarding choice of terms, you can go for 15, 20, 25 or 30 years. Indicate be noted here’s that after you decide on a 15-year program, you’ll be able to buy the house fully much more quickly but be ready to pay huge payment per month.
However, there is no doubt concerning the fact that after you go for a 15-year mortgage, you will save quite a bit of profit terms of interest rates throughout the amount of the loan, only issue that can bother you may be the high monthly payments.
And that is where the conventional 30-year fixed mortgage is very famous among general public, due to the fact of lower monthly installments. Adjustable rates loans are also not a bad choice provided you get it with lower monthly payments. It is always a good option to “buy down” the borrowed funds rate of interest. As one example of this point far better, when you pay a point on the loan, you will find that there’s likely to be dip in the rate. It can be a good financial strategy especially if you decided in which to stay the house for that coming two-three years. Before you apply, analyze your credit report carefully.