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How To Pay Off Your Home Loan 10 Years Sooner Without Spending One Penny In Extra Payments
Hello, Big Nick at the shop here.
You will laugh at the simplicity of this plan, and, at the same time, think what a great idea it is. It was a real light-bulb-going-off-in-my-head type of feeling for me.
So here it is: Replace Your Checking Account with A Home Equity Line Of Credit and You Will Save (Or Make) A Ton of Money.
That is all you really need to know, but let me give you the how and why of it so you can really understand.
A Home Equity Line Of Credit (HELOC) has 2 unique features that no other home loan offers that make this possible. They are:
1. It is a Revolving Account?
Just like a checking account or a credit card. That means you can deposit money into it and take it out when you need it. That is why you get a debit card and checks when you open a HELOC.
2. Interest Compounds Daily Instead Of Monthly?
While this may sound like a negative, it is really a benefit. I will explain below.
Say you just got paid at work. You go to the bank as you normally would to deposit your check, but you deposit it into your HELOC instead of your checking account. You go to the store to buy some groceries. You pay them with you debit card or checks, but you use the ones tied to your HELOC instead of your checking account.
It is exactly how you do it now, except it is sourced from your HELOC, not your checking account.
I know what youre thinking; Well great Nick, but how the heck is it going to save me money?
Do you remember how I said the interest compounds daily? Go grab your bank statement from your checking account. Do you see were it tells you what your starting and ending balance is? You will also see something that says Average Daily Balance. That means with all of the deposits and withdrawals, this is the average amount you had in the account. If you park this money into you HELOC it will lower the balance of your loan, thus lowering your payment. Because it compounds daily, it does not matter if you are constantly making deposits and withdrawals, you still benefit. Any amount you deposit into the HELOC above your basic interest goes 100% to lowering the principal balance. Let us work with some hard number so you can see it in action.
Say you have a $150,000 HELOC at 8%. This would make your full payment $1,100, with $1,000 of that going toward interest. Therefore, a whopping $100 goes toward principal. You also have an average daily balance in your checking account is $10,000. You park the $10,000 into your HELOC, making the balance $140,000. That would lower the interest part of your payment to $933, a savings of $67. Therefore, of your $1,100 payment, $167 goes toward principal instead of $100. For some of you that might not sound like much, so let me put it in these terms:
You will save $140,040 in interest on this $150,000 loan!
It would be paid off in 20 years instead of 30. That is 120 less payments times $1,167 per month. Imagine the drop in your stress level because of the lack of money worries! The funny part of it is the fact you can save actually more, A LOT MORE! I didn?t even talk about the tax strategies involved, or the way how this $140,040 savings can actually be a $509,000 gain! Does that Sound Interesting, if not almost unbelievable? I would tell you right now, but it is getting late and I am tired. You will have to call or email me for more info on this...
Is Your Subprime Mortgage Lender a Predatory Lender
Subprime lenders offer financing for people with low credit scores who don?t qualify for a conventional loan. Subprime financing can be offered through traditional mortgage lenders like banks, credit unions, or mortgage lenders. There are also specialized lenders who only deal with subprime mortgages.
Predatory lenders charge high fees, write loans in vague terms, and structure payments so they can foreclose on property. Predatory lenders take advantage of people who do not know their rights in the lending process.
Signs Of A Good Subprime Lender
Good subprime lenders only charge slightly higher rates than conventional lenders. They will also fully disclose their rates and terms so you can make an informed choice. Good lenders follow all the same practices as a conventional lender ? charging reasonable fees, answering all your questions, and making reasonable terms on prepayment.
Signs Of A Predatory Lender
Avoid lenders who charge high closing costs, excessive late fees, or large prepayment penalties. Such lenders are more interested in making large amounts of money than offering a service. Also watch out for lenders who try to lend more than your home?s value, forged documents, or refuse to disclose rates and terms.
Strategies To Find The Right Lender
Comparison shopping is the best way to find the right lender. Not only will you find the lowest rates, but you can be comfortable with your mortgage lender.
Make sure you look at all the closing costs associated with the loan. Legitimate lenders charge a number of fees, including origination, application, attorney, and other fees. Through comparison shopping, you will quickly become familiar with them. However, if you see a list of unfamiliar items, make sure the lender isn?t trying to take advantage of you. You should only pay fees for actual services given.
Keep checking your paperwork, even after you close the loan. Be on the look out for terms that weren?t disclosed prior to signing loan documents. According to federal law, you have three days after the loan?s closing to walk away. The lender may keep part of your application fee, but you get the rest of your cash back.
Sub-Prime Mortgage Loans - Five Ways To Lower Your Rates On A Sub-prime Mortgage
Sub-prime mortgages don?t mean you have to pay excessively high interest rates to buy a home. By taking time to do some research and pick the right terms, you can save thousands on your mortgage. The following five tips will help you get low rates with the right subprime lender.
Compare Lenders
The number one way to lower your interest rates on your sub-prime mortgage is to compare lenders before you apply. It sounds so simple, but too many homebuyers skip this step, costing them thousands.
Plan on taking at least a day to explore your options. The easiest way to look at financing packages is to request quotes online. While you are requesting quotes, take a look at conventional lenders as well. They often offer good rates and terms for those with adverse credit histories.
Pick An ARM
Adjustable rate mortgages (ARM) offer lower rates and are easier to qualify for than fixed rate mortgages. The drawback is that ARM rates can increase over the years. But if you are planning to move soon or just want to buy a home, then an ARM probably is your best choice.
You can also convert your ARM when your credit score improves. As property prices increase and your equity builds, you will also be able to get better terms in the future.
Increase Your Down Payment
By increasing your down payment, you can knock off up to a percentage point. Zero or little down financing is great for those short on cash, but rates are significantly higher. Ideally, you want to put down 25% to get the best rates. Just leave enough cash reserves to financing moving expenses.
Pay A Point Or Two
Points paid upfront can also lower your interest rate. You want to be sure though that you recoup the upfront costs. If you plan to move or refinance in a couple of years, you will not see the savings of lower rates.
You may also find that your money would be better spent on increasing your down payment than on paying points. With this type of decision, you will want to do some math with a mortgage calculator.
Bulk Up Cash Reserves
By increasing your cash reserves, you can also improve your credit score to qualify you for lower rates. Take advantage of tax refunds or cash bonuses by putting them into your savings. Lenders look at saving accounts, money markets, and CDs as cash reserves, not stocks or other volatile assets.
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