|
|
 |
|
 |
||
|
|
|
|
|
|
||
Mortgage Cycling - Brilliant or Risky
With mortgage rates near 20-year lows, competition in the mortgage industry is fierce. It seems like every day a new mortgage loan strategy comes out that is suppose to be the best thing since sliced bread. Whether its a mortgage with no closing costs or an interest only mortgage, everyone is claiming they can save you a ton of money. Now someone has come out with something called Mortgage Cycling. Mortgage Cycling could save you thousands of dollars or it could cost you your home.
Mortgage cycling is a program that advertises itself as a method to payoff your mortgage in 10 years or less without making biweekly mortgage payments or changing your current mortgage. Does mortgage cycling work as advertised? The answer is unequivocally yes ? with a few caveats. Im going to let you in on the secret to mortgage cycling.
Mortgage cycling is based on making huge lump sum principal payments every 6-10 months. What this means is mortgage cycling works well for those who have at least a few hundred dollars in extra cash at the end of each month. The problem is most people dont have that kind of cash available.
Mortgage Cycling relies on using a revolving Home Equity Line of Credit to make huge lump sum payments against their original mortgage principal balance. When you take out a home equity line of credit, you pay for many of the same expenses as when you financed your original mortgage such as an application fee, title search, appraisal, attorney fees, and points. You also may find most loans have large one-time upfront fees, others have closing costs, and some have continuing costs, such as annual fees. You could find yourself paying hundreds of dollars to establish a home equity line of credit. Most home equity lines of credit also carry what is known as interest rate risk.
Home equity line of credit interest rates are typically variable. The Federal Reserve is currently in the process of raising the overnight federal funds rate. As the Fed continues to raise rates, it is all but inevitable that variable interest rates for mortgages will also rise. Your savings may not be as great as anticipated.
While Mortgage Cycling does have some additional costs for most people, that is not what makes this mortgage reduction strategy risky. If you use a Home Equity Line of Credit and money gets tight, you could lose your home and the equity you have built up. Home equity lines of credit require you to use your home as collateral for the loan. This may put your home at risk if you are late or cannot make your monthly payments. And if you sell your home, most lines of credit require you to pay off your credit line at that time.
Mortgage Cycling requires you to make mortgage payments and Home Equity Line of Credit payments for up to 10 years. For most people mortgage cycling is an extremely risky way to payoff a mortgage. Mortgage cycling should be used only after a careful assessment of the risks and benefits. Prepaying your mortgage is smart. You should explore all of the mortgage reduction alternatives before choosing Mortgage Cycling as a mortgage reduction strategy.
The Top 5 Things You Must Know Before Applying for a Mortgage
You?ve been thinking about buying your own home for quite a long time, and now you?re ready to take the plunge. You?ve been saving money for a down payment, and you know the next step is preparing to apply for a mortgage.
But where do you start?
Here are the top 5 things you need to know before approaching a mortgage lender.
1. Understand Your Options
All mortgages are not created equal. There are several different types, which vary based on interest rates and payment terms.
For example:
? With a fixed-rate mortgage, your monthly payments remain the same during the entire length of the mortgage. There will be no variations in monthly payments, regardless of changes in interest rates and inflation.
? With an adjustable-rate mortgage, you will often receive a lower initial interest rate, but your monthly payment amount can rise and fall as interest rates fluctuate (within certain caps or limits).
? With a balloon or reset mortgage, you once again may be offered a low interest rate, but it will hold for a limited time. After that, the balance of the mortgage will be due, or you will need to refinance.
2. Become a Rate Watcher
The state of the economy influences interest rates, which ebb and flow on a regular basis.
Your daily newspaper tracks these rates, so stay current by watching whether rates are rising, falling or remaining stable.
It behooves you to become as educated as possible about how these rates will affect your mortgage?and to see if you want to postpone applying for one until rates drop.
3. Get Pre-Approved
Consider getting pre-approved for a mortgage, says Frank Nothaft, PhD, vice president and chief economist for Freddie Mac, the stockholder-owned corporation established by the United States Congress in 1970 to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing.
?A benefit of being pre-approved for a mortgage loan is that it gives the prospective homebuyer additional bargaining leverage when competing with other prospective buyers for a home,? he says. ?A home seller may be more likely to accept an offer from a pre-approved borrower?because the seller knows the buyer can get a loan?than from another bidder, who may be exactly the same in financial qualifications and offer, except that he lacks the pre-approval.?
4. Consider Making a Higher Down Payment
Making a higher down payment on a home will reduce your mortgage, but there are definite pros and cons, according to Dr. Nothaft.
?The pro of putting down more money is that you can often obtain lower-cost financing,? he says. ?High down-payment loans?that is, low loan-to-value ratio?represent less default risk to a lender, and are safer. That may translate into a lower interest rate or obviate the need for mortgage loan insurance.
?The con,? he continues, ?is that it may result in the borrower having to delay a home purchase, because the borrower does not have enough liquid assets to make a larger down payment. Low down-payment loans are especially important for first-time home buyers, who typically do not have the financial wherewithal to make a large down payment.?
5. Select Your Lender Carefully
As in any industry, there are ?bad apples? who ruin the reputations of respectable professionals. In the mortgage business, these folks are known as ?predatory lenders??individuals who take advantage of vulnerable consumers. Those most prone to becoming victims include the ill-informed, the elderly, women, minorities, low-income buyers and consumers with bad credit.
To avoid becoming ?prey,? select a lender with solid credentials. You can secure a referral from your bank or credit union, real estate agent, government housing agency, or friends and relatives who have successfully purchased homes.
Never trust a mortgage offer that arrives via email, as it likely originated from a spammer.
----
6 Things to Consider Before Refinancing
Perhaps you?re a homeowner in need of some quick cash.
Maybe you want to consolidate your debts so you have better control of your money.
Perhaps a lender is urging you to refinance because interest rates are low, and he has a too-good-to-be-true deal that will shorten your current loan?s term.
Here are 6 essential questions to ask yourself before making the decision to refinance.
1. What?s My Motive?and What Will It Cost Me?
Before you even consider a refinance, ask yourself this fundamental question: ?Why do I need it??
?Many times, people take out a new, larger loan to pay off credit cards, automobiles or even to purchase another home,? says Norm Bour, host of the nationally syndicated U.S. radio program The Real Estate & Finance Show, and an experienced mortgage lender. ?Sometimes they need the money to do home improvements or renovations.?
If, however, you want to lower your current loan payments or switch to a different type of loan, you must calculate the benefits before going the re-fi route.
?If someone is going from a fixed loan to another fixed loan, my general benchmark is to see a 1% reduction of interest rates to justify it,? says Bour, who also teaches money-management classes in Southern California. ?Sometimes the borrower goes from a fixed-rate loan to an adjustable to lower his payments. Sometimes he does just the opposite?maybe to get away from interest-rate volatility. These are very personal decisions, specific to each individual client.?
2. How Long Will I Be in the Property?
You may already know?or suspect?that you will not live in your current home beyond a certain timeframe (perhaps 5 years). If this is the case, why would you even consider a 30-year loan?
?Sometimes, an adjustable-rate loan or a ?hybrid??say, a 5-year fixed, then converting to an adjustable?makes the most sense,? Bour says.
3. What Am I Worth?
Do your homework before trying to qualify for a new loan. You should know:
? The approximate market value of your property, as ?loan to value (LTV) is one of the primary factors that control interest rate,? Bour says.
? Your credit score, which will affect your overall ability to secure a loan, as well as the interest rates offered and the options available to you.
4. Do I Have a Competent Loan Officer?
In certain cases, refinancing may not yield ?a monetary savings, per se,? Bour says. This means there must be ?compelling reasons? to secure a new loan, he emphasizes.
?A good loan officer will ask a series of questions to help the borrower identify his best option,? Bour says. The officer should:
? Assess your current monthly cash flow and potential future risks.
? Calculate your monthly savings if you were to refinance.
? Determine how long it will take you to break even.
? Fully explain the different types of loans and interest structures.
? Disclose all closing costs and ?hidden? fees (origination fees, escrow, title, underwriting, interest, taxes, insurance, prepayment penalties, etc.).
? Treat you with respect and as an individual?not come up with a one-size-fits-all, cookie-cutter approach to your financial future.
5. Do I Need a Second Opinion?
Because lenders have an interest (pun intended) in having you sign on the dotted line, it?s often worthwhile to seek advice from a certified financial planner or other expert who has no investment or agenda when it comes to your refinancing decisions?especially if you?re a first-timer who lacks fluency in real estate issues.
Accept your limitations, and have enough smarts to ask for help. A lot of money is riding on this decision, so never let pride get in the way of making the right choice.
6. Will This Hurt My Credit Rating??While refinancing, in and of itself, will do very little damage to credit scores, what will cause harm is excessive shopping amongst too many lenders,? Bour says. ?Each time a credit report is pulled by a ?potential grantor of credit,? it shows up as an ?inquiry??and each inquiry drops the credit score by a little bit.
?In the United States, the laws have changed over the past few years, and inquiries do not have the same negative impact as they used to. Most credit bureaus will now look at a ?cluster? of inquiries over a short period of time as being one inquiry.?
--------
 |
©Copyright
InsideTheWeb.All Rights Reserved.
|
 |
|
|
||
 |
Designed by kohj |
 |