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Income, Credit, Collateral

April 11th 2010 Posted at Mortgage
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Income, Credit, Collateral

Banks consider these three things when they are deciding whether or not they want to give you a mortgage.  A mortgage is a legal contract that is registered against the title to a property in order to guarantee that a loan will be repaid.

Income – Your income will help banks determine if you are able to pay them back when they send you your monthly home mortgage bills.  No one likes to make a investment that doesn’t have its return.  It’s like throwing your money in the sea, its just going to flow away.  Lenders want to know how much money you make and how much you will be making in the next 30 years including how much money you have saved and the value of your assets like stocks, mutual funds, and personal property.  You should be able to pay 20% percent of the value of the home you want to purchase as a down payment in order to avoid mortgage insurance, Money paid to insure the mortgage when the down payment is less than 20 percent.

Credit – The quality of your credit will help banks determine if you are a risk for them to lend you money.  Many things affect your credit rating.  One of the factor is how tardy are you when you pay your bills.  It doesn’t look good for as a borrower to have too many outstanding debts.  It means you have bad credit habits.  If you are looking to borrow money for anything at all, try to pay your bills on time and keep good credit habits.  Good saving habits combined with timely payments will help increase your chances to get a mortgage for a house.

Collateral – An asset (such as a car or a home) that can be used to guarantee the repayment of a loan. The borrower loses the asset if the loan is not repaid on time.  If you can’t pay the bank the money you have borrowed from them, the bank will take your house away from you.  Do not let this happen to you.  You will lose your house and you will have credit so bad you will never be able to borrow money again.  This is not a joke.   Please proceed with cautious when deciding to take a mortgage to purchase a house.  Make that you can afford to make such payments after all you other expenses are pay especially if you are not willing to sacrifice your luxuries.

There is no such thing as an impulsive purchase of a house.  No one just wakes up one morning and decide they want a house and buy it right away.  Buying and owning a house is a long arduous task, but it does come with its rewards.  In the long term, owning a house will most definitely be cheaper than paying monthly rent for an apartment.  You will never stop paying rent if you don’t own your own home.  You don’t have to pay your mortgage anymore after you finish paying your mortgage.  Furthermore, a home is great investment to make when interests are low.  You should borrow money when interest are low because you stand to earn more with the investment you make and pay less interest to the bank with the loan you take.  There are also tax advantages to earning a house.

Online mortgages

April 10th 2010 Posted at Mortgage
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Online mortgages

Advantages – The advantage of shopping for your loan online is that you can shop for several mortgages and compare at the same time without a great deal effort.  You get the same type of service as you would get if you went to a loan officer except you don’t have to meet them in person and you don’t have to walk from one bank to another to do comparison shopping.  Plus you can shop for a mortgage online wherever and whenever you.  You can do it at a local internet café sipping your cup of mocha or you can shop when all the banks are already closed.  The internet is on 24 hours a day.  You get more range and variety of mortgages than going to a local bank.  You can also avoid speaking to a loan officer sitting across from you.

Disadvantages – It is a bit impersonal to shop for a mortgage online since you are staring at the computer instead of a loan officer.  You might not be as comfortable shopping for a mortgage online if you are not comfortable clicking on the web to find your options, but you do not have to let this deter you from using the web to shop for a mortgage.  You can always find a web savvy person to give you a hand even if you are just trying to do research to bring to the local bank or mortgage broker.  You may also want to find a real person to talk to if you have special circumstances which require a tailor-made mortgage.  Most online mortgage services have representatives that are willing to talk to you over the phone, but they might not be experience in handling complicated loan situations.

Be careful of making credits checks with lenders.  You can harm your own credit rating when too many lenders requests a credit with social security number.  This is because too many credit report requests make it look like you are applying for a lot of loans and that you need dire amount of cash.  Lenders look at these borrowers at bad credit risks.  You might want to get all your mortgage shopping done within 14 days because credit scorers regard inquiries within a thirteen day period as one single inquiry.  Online mortgage aggregators can be very useful even if you are not ready to get a mortgage yet because they provide you with useful information on loans.

Tips on saving money on your mortgage

March 15th 2010 Posted at Mortgage
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Tips on saving money on your mortgage

  1. Do research and ask for professional advice to get the mortgage that best fits your specific situation.  A mortgage can work to your advantage if you pick according how you will be able to pay it off.  Just because one type of mortgage worked for someone else doesn’t mean that the same one will work for you.
  2. Mortgage lenders must compete for your business.  This means lenders are really to negotiate a better deal for you if you are a good candidate to be a homeowner.  Do not assume that the interest rate that is published is the final interest rate and be prepared to ask lenders for a better term.  Every little percentage point that you pay less for your mortgage is going to saving you a lot of money over a 15 to 30 year period.
  3. Most of the money that you will pay to your mortgage company is going to go to interest payment.  The banks will subtract from the interest you owe them more than they will subtract from the actual principal.  You can be paying your mortgage for twenty years before you can own more of your house than the bank does.
  4. Buy a house when the interest rates are low.  You can save money by repaying the bank less money for the money you have borrowed.
  5. You can save money just buy getting a mortgage because your mortgage is tax deductible.  If your loan is less than one million dollars, you will be able to deduct mortgage interest and property tax when you file you federal and state tax income forms.  It is a nice perk that comes with buying a house.  Be sure to check with your accountant to see how much you will be saving with tax deduction.

Types of mortgages

February 14th 2010 Posted at Mortgage
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Types of mortgages

The three facets to a loan are size (the amount of money you want to borrow), interest (the percentage rate you pay on the loan), and term (the time it will take you to pay off your loan).

Picking the right mortgage is very important.  For one thing, you will be paying for mortgage little by little in the next thirty years.  It’s important to try to find a mortgage to fit you and how you want to pay it back.  The higher your interest you are paying, the whole money you be paying back for what your original is.  Furthermore, if you are paying your loan back over a very long period time, this will also increase the amount of money you have to pay back.  The thing you really want to do is to get an interest rate that is lower than the inflation rate.  This means that you will be paying back less money than you are actually borrowing.  This would be an ideal mortgage.  Not everything in life goes as planned; therefore we must make the best possible choice.

There are two basic types of mortgages.  The first is fixed rate mortgage, which means the monthly rate at which you pay the bank back is the same every month.  This is usually for 15 or 30-year loan.  A fixed rate mortgage guarantees a stable rate of paying back the bank.  This can work to your advantage especially when the loan takes a long time to pay back and the rate of inflation increase over the actual interest that you pay back.  Over time the value of your money is worth less and less because inflation decrease the buying power of your money.  It is important to consider if you can pay this monthly amount of a long period of time.

The second type of mortgage is an ARM, adjustable rate mortgage, where the interest rate of the mortgage changes over the lifetime of the loan to reflect changes in our credit market.  The first year rate of an adjustable art mortgage, the teaser rate, is usually a few percentage points below the market rate.  This means that your early loan repayment will be less than what it will be in a fixed rate mortgage.  The adjustable rate mortgage also comes with a cap, a maximum level of interest rate at which the loan can go up to.  This type of mortgage is great for those who want to pay less at the beginning of the loan period and expect have increase in income over the period of the loan.  The interest rate that can rise each year is also limited so that banks cannot sky rocket your interest rate just because they feel like it.  The interest rate usually goes up one or two-percentage point per year.  It is important to consider if you can afford to pay this loan back at its worst-case scenario.  The worst-case scenario is that the interest rate goes up and your ARM adjusts to its maximum.

Additional types of mortgages

The most adjustable type of ARM is COFI, cost of fund index.  A COFI loan doesn’t have any caps and the interest rate adjusts from month to month.  Even though the index of a COFI adjusts from month to month, it has the most stable index because it tends to be a slow moving index.  The COFI index is tied to the rate that banks have to pay their depositor to keep their money in forms of checking accounts, saving accounts, and certificate of deposit.          The advantage of taking a COFI loan is that you can vary the amount of your payments from month to month.  This loan is more adjustable to suit your temperament and your budget because you can choose to pay more or pay less as each month passes.  Inquire about this loan if you are interested because it is usually not brought up as an option.

A hybrid loan is a combination of a fixed rate mortgage and an ARM.  A hybrid loan is typically fixed for 1,3,5,7, or 10 years before it is converted into an ARM.  This type of mortgage can give you stability for a given amount of time.  After the adjustable rate mortgage kicks in, your mortgage interest rate will be determined by prevailing interest rates.

A two step loan attempts to provide borrowers with the stability of a fixed rate mortgage and the lower rates of an ARM.  The most common forms of two step loans are 5/25 and 7/23.  Both 5/25 and 7/23 add up to the number 30, which is the entire life of the mortgage in years.  The loan will be fixed for the first or seven years.  After the first term period of the loan is over, the loan will either become an annually adjusted ARM or a fixed rate mortgage.  The interest rate of a two step loan is generally lower than that of a standard 30 year mortgage.

Balloon loans are short term loans where you borrow money for a short period time like three or seven years.  You amortize a balloon loan as if the loan was a standard 30 year loan until the end of the three or seven year period.  At the end of the term of the loan, you have to pay the bank the entire remaining principal you owe in one lump sum.  You can use a balloon mortgage to your advantage in you are into short term investing and resell your house after you have finished paying off your mortgage.  You pay less in interest over the course of the loan and can save thousands of dollars in interest when compared to a normal 30 year loan.  Of course, paying the remaining principal in one loan sum can also be a task.

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