Should You Take Advantage of Your Home’s Equity?
One of the great things about owning a home is the equity you build into over time. It’s money you can’t easily touch, but when you really need it, it’s there.
Many homeowners will at one time or another consider getting a home equity loan. These are most commonly used for home improvements, as homeowners reach a point where they want to improve the place they live. But you have to be careful when you do so.
The two possible types you have to consider are the standard home equity loan and the home equity line of credit. You have to choose between them depending on your needs.
A home equity loan gives you all the money at once. This can be nice if you want to pay for your remodel job all at once, but it doesn’t leave you quite so much flexibility, and you start paying interest right away.
Choosing a home equity loan means you will want to know how much money you will need. The interest rates will be lower than you would pay if you put the same on most credit cards, of course, but if you aren’t paying for the entire job up front you’ll be paying interest on money you aren’t really taking advantage of yet.
A home equity line of credit gives you more flexibility, as you can pay out money as you need to, and only pay interest on what you have used so far. That can be useful in many circumstances.
In addition, many are interest-only loans, which mean lower monthly payments. However, that also means you have to make a balloon payment at the end, and that can be challenging for most people. The interest rate will probably be variable, rather than fixed, but once again likely still lower than your credit cards would charge.
There is another situation, however, in which people decide to use their home equity. Some people like to use it to consolidate their credit card debts when these get too high. Unfortunately, for many this turns out to be a really bad idea.
The trouble with this idea is that it doesn’t generally address the problem that caused high credit card bills in the first place. And with the cards paid off, many people charge them right back up again. Soon they can’t make those payments or the payments on their home equity loans and they’re in trouble. At risk of losing their home.
In this situation, it is far smarter to figure out how to address the spending issues before touching your home equity. You have to commit yourself to living within your means, or you risk losing too much.
In the right situation, however, a home equity loan can help you to do wonderful things, whether it’s to fix up your home or to fix up your finances. But if you aren’t careful it can destroy all you’ve worked for and cost you your home.
Stephanie Foster blogs at http://credit-blog.findcreditonline.com/ about using your credit wisely. You may be able to find the right home loan for your needs at http://www.findcreditonline.com/home-loans.php
Have An Adjustable Rate Mortgage – Need To Remortgage In A Hurry?
Most people are probably aware that interest rates have been on an upward trend. For those who have fixed rate mortgages it does not really matter. But if you have an adjustable rate mortgage, then you may already have seen an increase in your payments. Because these can go considerably higher, it may be a good time to consider getting a remortgage. Here are some tips on how to do it.
Adjustable rate mortgages are definitely the way to go when it comes to getting lower payments – at least it was the way. The problem with this is that they are only good for a limited time. While your payments are fixed at the start, you can’t beat it. When it goes to the adjustable part, however, with today’s economy, it can become a real nightmare.
Getting a remortgage is about the only solution you have. The quicker that you get it – the better off you will be. If the economy changes for the better in the future, you can always remortgage again.
Ideally, the best time to remortgage is when mortgage rates are more than at least 1% less than what you have now. It is possible, though, that you just need to get a new fixed rate mortgage before you lose the house. If so, then act immediately. One way that you can drop your payment amount with a fixed rate mortgage, is to increase the overall time period of the mortgage. Although it will lower the payments, it will increase the amount you actually will pay in the long run – but it will be cheaper than adjustable rate if rates don’t get better. Consider remortgaging again later.
The next thing you need to do is to go online and get some quotes. This is easy to do and you can get more than one quote from a single Web site. But you still need to go to more than one, though, and get several quotes. Then carefully compare them, and see which one will work for you. You should know however, that a fixed rate mortgage is typically higher than an adjustable rate mortgage. That is probably why you went with an adjustable rate – so you could get a bigger house.
After looking at the quotes you receive, you will know two things – if a fixed rate remortgage is within your budget, and secondly, if you will be staying in that house. While that may sound a little drastic, you already are probably experiencing what is happening with interest rates. You have already seen the bills.
If you believe that the new payments sound good to you, you need to sit down and decide if you can make those payments for at least three years. This is how long it will take to recover the costs that will be involved in the remortgage process – closing costs all over again. So, if there is a possibility that you may not want to stay that long, it is not for you.
Finally, determine how much equity you have in the house now. With it, you may be able to get some debt consolidation, which may make getting a remortgage even more worth it.
Joe Kenny writes for the UK personal finance site http://www.ukpersonalloanstore.co.uk/mortgages.html and read the article, http://www.ukpersonalloanstore.co.uk/financial/different_mortgages.html
A $310,000 Mortgage With a $999 Monthly Payment!
A friend of mine called to inform me he had gotten some great news in the mail. He received a letter from a lender in California informing him they would give him a $310,000 mortgage and his monthly payment would only be $999! “Think of the house I could buy,” he told me excitedly! “I know I could qualify to make a monthly payment for twice as much and if I sell my house which has a $200,000 equity and we use it for a down payment, I could get a million dollar house! Wow! What am I waiting for?”
His figures were only slightly off. If he had a $200,000 down payment and he could lock in a $1,998 monthly payment on a $620,000 borrowed amount, he could afford a property priced at $820,000. However, since I was suspicious of the kind of mortgage he was talking about, I told him to bring his letter to me and we could figure out exactly what he could qualify for. Instead, he invited me to his house. I thought it was a good idea because he has a billiard table and it might be some consolation to him, that as I was putting his dream of living in a mansion on hold, he would be annihilating me at 8-ball.
I came to his house prepared. I found out that a $310,000 mortgage for 30 years with a $999 monthly payment is a 1% interest mortgage. Then, when I read the proposal he had received, it was as I had expected. What this letter was offering was a negative amortization mortgage.
I had to read some very small print but after I did, here’s what I found out. Once you close on the $310,000 mortgage, you have up to three years in which they will accept a minimum monthly payment of only $999. During these three years, regardless of what you’re paying, the mortgage is a 7% mortgage.
In order to amortize normally, or be paid off normally, a $310,000 mortgage at 7% for 30 years requires a monthly payment of $2,062.44. This $2,062.44 includes interest and principal. In the early stages of a negative amortization mortgage, no principal is paid. The entire payment goes toward paying the interest on the loan. The interest due on the first payment of this loan is $1,808.33. Since the payment will be $999, $809.33 ($1,808.33-$999) will be added to the principal. Since this mortgage will have a principal that is increasing instead of decreasing, it is what is known as a negative amortization mortgage.
With the terms of this mortgage, it would accumulate $32,316.76 more debt over 3 years, which when added to the $310,000 original mortgage, totals $342,316.76 principal owed. When the negative amortization period of the mortgage ends, the mortgage becomes a regular mortgage. In this case, that happens after 3 years. Then, there is 27 years left to pay the $342,316.76 owed at 7 %. This would take a monthly payment of $2,354.51. A far cry from $999 a month!
Remember, all these numbers were for a $310,000 mortgage; my friend was looking to apply for twice that much because he feels he could make a $1,998 monthly payment. Instead, after 3 years his payment would be $4,709.02!
There are many different variations of negative amortization mortgages, but this example gives you an idea of how they work. Lately, it seems that the most fashionable type of negative amortization mortgage uses a 40-year term. Sometimes the small payments are allowed for up to 5 years and the principal is allowed to increase up to 25% more than its original value.
The idea behind negative amortization mortgages is just to get more people to qualify for a large mortgage, even though when the negative amortization period of the mortgage ends, they may not be able to make the much higher payments.
Of course, in a perfect market, the property’s value will increase more than the amount the negative amortization mortgage will add to the principal owed. So, in this perfect market, one would gain equity in the property. Then, he could sell the property at a profit. If a negative amortization mortgage had not been available, he would not have been able to qualify for a large enough loan to purchase the property, and so, would not have been able to make a profit from it. This, however, is what I call dynamite speculation. Dynamite speculation is speculation that may blow-up in your face.
I would never recommend taking the risk a negative amortization mortgage presents to a borrower. He may not be able to make the large monthly obligation he will eventually have, and if the price of his property doesn’t skyrocket, he wouldn’t be able to sell his property at a profit. So he would be risking foreclosure.
As I was being creamed for the seventh game of 8-ball in a row, my friend came to the realization that a negative amortization mortgage was not right for him, and maybe, not right for anybody. He further realized that a few hours ago, he was all ready to buy a new house when he previously had not been giving any consideration to doing so. Therein lies the power of an advertisement for a negative amortization mortgage.
In the classic movie, “Smokey and The Bandit,” Sheriff Buford T. Justice strolls up to a young man who was about to strip parts from an abandoned vehicle. He told the young hoodlum to turn around and put his hands on the car. Then the lawman gave the young man a good boot in the pants and warned him, “That was an attention getter!” When you see an advertisement for a mortgage which offers a large loan with a very small monthly payment required, that too is an attention getter. So beware, that mortgage, after it gets your attention, might just turn around, and like Sheriff Justice, give you a real good kick in the pants.
Ed Lathrop is a successful Real Estate investor. He has developed EzCalculator, a Mortgage Calculator that calculates anything to do with mortgages. EzCalculator includes the famous ?How to Make $100,000 on Your Mortgage? calculator. Come visit this free site at http://ezcalculator.com
Things To Consider When Taking Out A Mortgage
If you are considering buying your first home or if you are considering moving to the house of your dreams then you will need to consider very seriously which mortgage is the right one for you.
Many mortgage providers will give provide incentive deals for people arranging mortgages through them for the very first time. They will offer a variety of mortgages based around variable rates and fixed terms. It will be down to you to decide which mortgage best suits you and your finances.
Nothing in life is guaranteed so whilst the property market is quite stable and has been for some time it could change for the worst which in turn will effect your monthly payments should you not be on a fixed term.
Arranging a mortgage with a fixed rate of interest and a term of say two or three years is probably the best option as this will insure your finances will be manageable and stable for that term and you will be able to budget accordingly.
However there is a downside to arranging a fixed term mortgage and that is if the variable interests rates fall below what you are paying on your fixed term. Normally a fixed term rate will be very competitive with the current variable so this scenario is unlikely but it is a reason why you should not enter into a long fixed term of say five or six years as you will be annoyed if you are paying over the odds on your mortgage whilst everyone else is enjoying a lower interest rate.
It may be a case where your finances at the moment are particularly tight but may not necessarily remain that way in the future. An example of this is where a couple buy a house based on a joint salary and their finances and budget are tailored accordingly and then they have children. This often means that one person has to leave work and look after the baby and will not be able to return to work until the child is ready to go to school.
Of course if this is the case your finances will suffer for it and money will be tight at a time where you will want to buy things for your child and your home.
There are one or two ways you can spread your mortgage payments to accommodate the time when one partner is unable to work.
Firstly you can approach your mortgage company and request they spread the term of the repayment. A standard mortgage is often over a period of twenty five years however this can be increased to a period of forty years in most cases and will considerably reduce the monthly payments and ease the burden on your finances.
Alternatively you can change your mortgage to an interest only repayment and again this will decrease your monthly payments although you will need to convince your mortgage provider arrangements are in place to repay the capital at the end of the term.
Both of these arrangements can be viewed as temporary and reversible at a point when both partners are able to return to work on a full time basis.
Allen Jesson writes for several sites that specialize in
http://www.debt-equity-finance.com
http://www.0-debt.com
and http://www.abacapital.com
Mortgage Guide for Beginners
If you already have a mortgage than you surely know the basic and the “tricks” for obtaining a great deal. If it’s your first one though you should back up with some information so that you are able to “sense” the deals that are good for you. Of course in any case professional advice should be taken before signing any mortgage.
First of all make sure you know the basic terminology. A mortgage is a loan you obtain to pay for your home. The interest rate is the amount that the bank charges you to pay for using its money. The term of the mortgage is the time limit you have to repay the loan. Usually it is between 25-30 years since the amount of money needed to buy a home is big. Of course there are much more things to learn about the terminology used however these are the very basic things that you should know.
The next thing you should know is what the interest rate types are. Generally any mortgage differs because of the interest rate type and it can influence the payments you will have to make in order to repay the loan. There are variable rate mortgages, fixed rate mortgages, discount rate mortgages, capped rate mortgages. The variable rate changes according the Standard Interest Rate. As the Standard Interest Rate can increase or decrease so will do your monthly repayments. Of course you will benefit if the rate goes down, but your monthly payments may jump rapidly if it goes up. The fixed rate mortgages benefit from a fixed rate for a specific period of time. Afterwards the rate is calculated according lenders standard variable rate. The discount rate mortgages offer a discount of the lender’s standard interest rate. The discount is valid for a period of time and once it’s over the interest rate goes back to the lender’s standard interest rate. A capped rate means that the interest rate will not increase over the capped rate for a fixed period of time. It’s one of the best interest rate schemes but you should be careful as usually lenders offering capped rate mortgages have higher additional fees and charges.
The last thing to know is what types of mortgages are available. Obviously there will be a lot of mortgage products offered by the different lenders but in general there are two main types of mortgages: repayment mortgage and interest only mortgage. If you have a repayment mortgage, you will have to pay part of the amount borrowed and part of the interest. On the other hand if you have an interest only mortgage you will be paying the interest to the lender but without reducing any of the capital borrowed. Both types have advantages and disadvantages so you should seek professional advice which one is best for you considering your personal circumstances.
The last thing in our list but definitely not the last thing to consider is what type of lender you should choose. Unfortunately the loan officers you will contact will make beefy offers and at a first glance it will seem you have found the best lender. Don’t forget though that this is the loan officer job so always make separate research about the lenders you have contacted. Each lender has strengths and weaknesses and you will have to asses them.
Keith Londrie II is the and publisher of http://mortgageinfoproducts.coffee-info.info A website that specializes in providing tips on mortgage infoproducts that you can research on the internet.
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