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Getting rid of a troubled home loan

February 11th, 2011

Are you desperate to get rid of your mortgage problems? You are not alone. Zillow recently reported that 27 percent of U.S. homeowners are underwater on mortgage loans. There also were 261,333 foreclosure filings in January, according to RealtyTrac.

But homeowners dealing with foreclosure and underwater home loans aren’t the only one struggling. Some borrowers are struggling to make monthly mortgage payments due to a drop in income, job layoff, illness or some other factor beyond their control. There is no easy solution to dealing with mortgage problems, but there are several options to consider.

Sell your home

Getting rid of a mortgage loan is the best option if you really can’t afford to make the payments. Just because you sell the property you currently live in doesn’t mean you won’t be able to purchase another home in the future. Find out what’s going on in your neighborhood in terms of home sales. If there have been a lot of foreclosures, the value of your home is likely to be affected. But even if you are underwater on a mortgage loan that doesn’t mean you have to give up the idea of selling. But you may have to consider a short sale.

A short sale occurs when the mortgage lender agrees to accept a lower payoff that what you owe on a home loan. The advantage to doing a short sale is that the lender can recover some of what’s owed. You would be able to get out from under a troubled loan and avoid foreclosure. Keep in mind that any mortgage debt that is forgiven by the mortgage lender in such a deal may be taxable, so it’s important to consult with a tax advisor.

Mortgage refinancing

Maybe you are feeling pinched by monthly mortgage payments, but things haven’t gotten so serious that you are about to lose you home. If you still have some home equity and good credit, you might qualify for a mortgage refinance. The more equity you have and the higher your credit score the better. Refinancing could be the right move it you are paying interest that is much higher than current mortgage rates. A mortgage payment calculator can help determine how much money you could actually save by refinancing.

These are just a few ways to get out from under expensive mortgage payments. There may be other solutions that suit your financial needs. Talk with your mortgage lender or a housing counselor to learn more about your options.

3 ways to cut your mortgage costs

September 10th, 2010

Buying a home is probably the biggest purchase you’ll ever make. Like most people you probably don’t have enough cash on hand to buy a property outright and need to obtain a mortgage loan, which means you are committing to many years of loan payments.

Most mortgage loans are set up to be paid out over a long period of time, such as 30 years, and the interest payments result in paying a whole lot more than the actual purchase price of a property. For instance, if you use a mortgage payment calculator to determine the amount of interest paid on a 30-year fixed mortgage loan for $200,000 at 4.5% interest, you’d pay $164,813.42 in interest over the life of the loan.

Cut Mortgage Costs

So what can you do to decrease the amount of money paid out of your pocket over the life of a home mortgage?

  1. Save up a larger down payment. This probably isn’t the first time you’ve heard this piece of advice, but you really can’t afford to ignore it. Using the scenario described above, assume that the down payment on the mortgage is 20%, or $40,0000. The total amount of interest paid out over the 30 years would be $131,850.74. Boost the down payment to 30% ($60,000) and the amount of interest paid would be $115,369.40. The more you put down the less interest you pay and the smaller the monthly payments are going to be.
  2. Property taxes and homeowners insurance add to monthly mortgage costs. Shop around for the best homeowners insurance policy you can find. Mortgage lenders require insurance premiums to be paid into an escrow account each month. Take time to compare different policies to find the best one for your situation. It may make sense to increase the deductible to have smaller monthly payments. You also may get discounts for being a long-time customer, having multiple policies, or not filing any claims over a certain period of time.
  3. Pay extra toward the principal. Even if you can only spare $50 extra to put toward a mortgage loan each month, do it. Paying down principal faster than the term of the loan can significantly cut your total mortgage bill. If owning your home free and clear of mortgage debt is important, focusing on reducing principal can help.

Refinance to lower payments

Also consider taking advantage of current mortgage rates to refinance out of a high-interest home loan. Decreasing your monthly payments could save hundreds of dollars a month, allowing you to keep more of your take-home pay. You also could refinance and continue paying the same amount each month to reduce principal quicker and cut the total amount of interest paid out over the life of the loan.

10 Mortgage Terms You Should Know

April 9th, 2010

Educating yourself about how mortgage loans work should happen before you end up in negotiations to by a home. The following guide discusses some common mortgage terms you should understand as you work toward becoming a homeowner.

  1. Amortization schedule shows how your monthly mortgage payment is split between principal and interest. Over time as the loan balance decreases, the amount of payment that goes toward the principal increases. Use a mortgage payment calculator to figure out an amortization schedule.
  2. Appraisal is a report that puts a value on a property. The home value is determined by looking at the features of a home, as well as looking at sales of comparable properties in the same area.
  3. Closing costs are fees associated with borrowing a mortgage loan. Some closing costs are nonrecurring fees, such the amount you pay for a title search. Other closing costs may be prepaid fees that recur over the life of the loan, such as property taxes and insurance premiums.
  4. Down payment is the amount of cash you have to pay toward the purchase of a home. This money is due at closing and is not included in the home loan.
  5. Escrow account is where money is set aside out of your monthly mortgage payments to cover property taxes and insurance. Most banks set up mortgage payments to include these fees, as well as principal and interest.
  6. Fixed-rate mortgages have monthly payments that remain the same throughout the term of the loan. It’s common for these home loans to have terms of 15 or 30 years, but other terms may be available.
  7. Home inspection is a thorough examination of a home to see if it structurally sound, in need of repair, or has other problems that need to be addressed. Always get a home inspection, even if you are purchasing new construction.
  8. Mortgage insurance (MI) is a policy that covers the lender if you default on a home mortgage. MI is required when you have a down payment that is less than 20% of the purchase price.
  9. Pre-approval occurs when a mortgage lender reviews your completed loan application and detailed financial information and has approved you for a loan of a certain amount.
  10. Mortgage rate lock occurs when a mortgage lender agrees to guarantee the interest rate for a specific period of time. Most mortgage lenders require you to pay a fee to lock in the rate.

These are just few of the mortgage terms you may encounter. Review the glossary of terms to learn more about mortgage loans.

Mortgage Acceleration Pros and Cons

March 3rd, 2010

The troubled economy has caused some homeowners to consider accelerating their mortgage loan payments. Although many financial experts caution against paying off a home loan early, many people are ignoring that advice and focusing on owning their homes faster.

Mortgage Interest

One of the most common reasons given to discourage people from paying off a mortgage early is because they won’t be able to deduct the interest they paid on their income tax returns.

Before you accept this argument hook, line, and sinker, use a mortgage payment calculator to see if the amount of interest you can deduct on a tax return beats what you can save on interest by aggressively attacking mortgage principal.

Saving and Investing

Another argument against paying off a home mortgage early involves the notion that you could earn more by investing the money you would put toward extra payments. In some cases you would earn more by investing the money. But it’s important to stay true to yourself and decide what type of risk you want to take with your cash.

Are you going to feel more secure with your money in the stock market or some other type of investment, or are you going to be happier knowing that you are going to own your home free and clear in a few years? Only you can decide if mortgage acceleration is right for your situation.

How to Accelerate Mortgage Loan Payments

If paying off a home mortgage early appeals to you, consider these popular methods:

  • Make mortgage loan payments biweekly instead of monthly. This amounts to making 13 payments a year instead of only 12. Although many banks offer to set up biweekly payments for a fee, you can do it on your own. Simply cut your monthly home loan payment in half and pay that amount every two weeks.
  • Use bonuses, tax refunds, and other windfalls to pay down your home loan. Make sure you direct the mortgage lender to apply the funds to your principal.
  • Refinance mortgage to pay it off in 15 years. Depending upon how much principal you owe, expect to see the monthly payments increase. Make sure you have the income to support the higher mortgage payments.

Pay off Other Debt

Finally, when deciding whether or not to pay off a mortgage loan early, consider whether or not you have other debts. If you have high interest credit card debt or other loans, use extra cash to pay them off before turning your attention to acclerating mortgage payments. 

Do You Have a Big Enough Down Payment for a Mortgage Loan?

February 5th, 2010

It’s a buyer’s market right now for people wanting to purchase homes. Housing prices are affordable and mortgage rates are low. But if you don’t have a sizable down payment saved up, you could end up straining your finances.

Use a Mortgage Payment Calculator

Before applying for a home loan you should go on a fact-finding mission to determine how much house you can afford. While it’s fun to visit open houses and browse through homes for sale at various Web sites, it’s just as important to crunch the numbers with a mortgage payment calculator to see what your monthly bill is going to look like.

Your Down Payment Matters

So much attention gets focused on mortgage rates that many people don’t really stop to think about how the size of their down payment is a key factor in how money they’ll shell out for housing payments for the next 30 years or so.

During the housing boom, mortgage lenders often enticed borrowers with home loans that required zero or low down payments. Millions of home buyers jumped into these mortgage loans, desperate to get a piece of America’s homeownership dream even though it meant high monthly payments or mortgage rates that would adjust up in the future.

Who Can Get Low Down Payments?

Mortgage lenders are reluctant to offer many borrowers low down payment mortgage loans these days. Some borrowers may be able to qualify for low down payments, but many mortgage lenders are looking for 20% down to underwrite home loans at the best mortgage rates.

FHA Changes Down Payment Rules

Even the Federal Housing Administration is rethinking its 3.5% down payment option. It recently announced a policy change to only allow people with credit scores of at least 580 to qualify for the 3.5% down payment. Borrowers with lower credit scores must put down at least 10% on a mortgage loan.

Beyond Home Loan Principal and Interest

When using a mortgage calculator be sure to plug in your estimated costs for homeowners insurance, property taxes, and homeowners association (HOA) dues. Depending upon where you buy a home, these costs could add a significant amount of money to your monthly housing bill.

Are You Ready to Get a Mortgage Loan?

Your fact-finding mission should determine whether or not you are ready to apply for a mortgage loan and buy a home. After running all the numbers through your calculator and looking at how much debt you can afford to carry on your current income, it may be prudent to postpone a home purchase. But if you feel that you are ready to take the plunge, shop around and compare quotes from several mortgage lenders to find the best deal.

Who Wants a McMansion?

January 8th, 2010

Builder magazine recently had an article about whether or not the McMansion is dead. McMansions certainly seem out of reach for many Americans at a time when unemployment is high, demand for food stamps is up, and being frugal is in vogue.

McMansions Sitting Empty

It’s likely that the inability of many Americans to obtain jumbo mortgage loans combined with a movements to downsize may slow development of these supersized homes. Also, there seems to be an overall feeling among many folks that McMansions are wasteful. About 69% of Americans said the American home had gotten too large, according to a CNNMoney poll.

So should you give up your dream of owning a larger home, even it if can’t exactly be called a McMansion? Not necessarily. But here are a few practical things to consider.

Mortgage Debt-to-Income Ratio

You need a healthy income to afford home loan payments on a large home. Use a mortgage payment calculator to determine how much house you can afford. Keep in mind that you need to have a debt-to-income ratio within underwriter guidelines to get approved for a home loan.

Mortgage lenders usually don’t want you to have more than a 28/36 debt-to-income ratio. In other words, your housing expenses (including taxes and insurance) should ideally use up no more than 28% of your gross income, and your total debt (including a mortgage) should use up no more than 36% of your income.

Other Housing Costs Add Up

In addition to monthly mortgage payments, expect to shell out money for other housing-related costs. Those bills include utilities, repairs, and maintenance. Depending upon where you live you also may have to budget for lawn care, snow removal, or homeowner’s association dues.

Jumbo Mortgage Rates

Mortgage lenders set higher mortgage rates for jumbo home loans. There also tend to be more fees. What is classified as a jumbo mortgage loan differs from one area to the next. In most states mortgages over the conventional loan limit of $417,000 are considered jumbo loans. You are unlikely to qualify for this type of mortgage unless you have excellent credit and a substantial down payment.

Ultimately, the decision to buy a large home is a personal one. But among the things to consider are whether you really require a lot of space, believe your income is going to remain stable, have a lot of family members who plan to live there and share the expenses, and whether or not you have the time and money to maintain a large property.

Should You Refinance to Get a 15-Year Mortgage?

December 31st, 2009

Mortgage refinance rates have edged up recently but are still low enough for many people to apply for a loan. If you’ve been paying on a home loan for several years, refinancing to get a 15-year mortgage can help you pay off your home quicker. But should you do it?

Lower Mortgage Rates

Mortgage loans with a 15-year term have lower mortgage rates than 30-year loans. That means you end up paying less interest over the life of a loan. For instance, 30-year fixed  mortgage rates are averaging 5.14%, while 15-year fixed loans are averaging 4.54%, according to Freddie Mac.

High Monthly Payments

But refinancing into a 15-year loan from a 30-year mortgage usually means your monthly payment is going to rise. For example, a 30-year mortgage  for $200,000 with a 5.14% rate would have monthly payments of $1,090.82, while the same amount for 15 years at 4.54% would have monthly payments of $1,534.08. Use a mortgage payment calculator to run different scenarios for interest rates and terms.

More Homeowners Refinance for 15 Years

Despite the higher payments, 15-year mortgages are popular these days. About one in five mortgage refinancings in November were for 15-year mortgage loans, according to the Mortgage Bankers Association. “My general advice is homeowners who have 30-year mortgages — and they’ve been in them for 3 or 4 years — it’s prudent not to go back into a 30-year mortgage,” Amir Syed of American Street Mortgage told CBS2.

Mortgage Principal and Interest Payments

Most of your mortgage payments go toward interest in the early years of amortization. So if you already have a 30-year home loan and refinance for another 30 years, you end up starting over again with most of your payments going toward interest.

It’s important to discuss all the numbers with your mortgage lender to determine if it really makes sense to refinance. Use the refinance savings calculator to determine if you can save money by refinancing and how long it is going to take to recoup the cost of refinancing.

Financial Freedom

For many people paying off their home represents true financial freedom. A 15-year mortgage is one way to reach this goal quicker, although you may have to make some sacrifices in your monthly budget to afford higher mortgage payments.

You can get free, no obligation mortgage refinance quotes here to determine if a 15-year loan can help you.