Paying Off Mortgage and Retiring – 5 Reasons Why One Should Come Before the Other

Paying Off Mortgage Before RetirementBeing free of debt is a great way of enjoying your retirement years. Most people agree that paying off your mortgage before you retire is something that will give you peace of mind and more financial freedom. However, many people end up retiring before their mortgage is paid off, which might not be necessarily a bad thing. Like everything when it comes to mortgages, what is best for one home owner may not be the best for another. Essentially, paying off your mortgage before your retirement years is advantageous, but there are cases in which not paying it off is the better choice, especially if getting rid of your mortgage involves a large financial sacrifice (Read: Should You Rely on Home Equity When You Retire? Think Again!).

When is it better to Not Pay off Your Mortgage

Not having to worry about a large debt after retiring will most likely make your life much easier. Unfortunately, paying off a mortgage earlier is not always a good idea. With today’s interest rates, you are probably paying less than 5 percent on your mortgage loan, and more than 10 percent on your credit card balances. Mortgages are considered a good debt, which means that you should pay them off last, and worry more about other type of debt.

Unless you have large assets that you can use while retiring, you should think twice before paying off your mortgage. Your retirement accounts have more tax advantages, so you should put your money into those before paying off debt. An even worse idea is to pay off your mortgage using money from your retirement accounts. You will have to pay a large penalty for the withdrawal, and end up spending more than you would on your mortgage.

Also, if you are able to refinance your mortgage loan, you could be saving thousands of dollars. However, refinancing is expensive and you have to include closing costs in your calculations before deciding if refinancing will save you money, or you should keep paying the mortgage as before (Read: Do You Make These Mistakes? Don’t Kill Your Mortgage Refinance!).

Reasons to Pay Off Your Mortgage before Retiring

There are more reasons to pay off your mortgage before retiring than there are to not pay it off. To find out even more reasons click here. Taking the necessary steps to make sure that your retirement accounts are replenished is very important before deciding whether paying off your mortgage is worth it or not. Here are the reasons why getting rid of your mortgage should come before retiring.

  1. Peace of mind. After years of making large payments each month, you can finally say that you truly own your home. This is especially important after retiring, when your income probably won’t be as large as before, and the chances of generating additional income are thin. Finding a job, investing or starting a business in your retirement years is unlikely, so not having to worry about the risk of losing your home if something unforeseen happens, or about having to make a large payment each month, is a blessing. To learn more about the benefits see this.
  2. Savings in interest. Over the life of a mortgage loan, you will be paying tens or hundreds of thousands of dollars in interest, so paying it off as soon as possible means that you avoid paying all that interest. Even refinancing into a shorter loan will bring great savings, as long as you don’t spend a lot on the closing costs. Not only will you be mortgage free by the time you reach your retirement years, but you can also use the money that you saved for something that will make your retirement much more enjoyable.
  3. It allows you to focus on spending less. The process of paying off your mortgage allows you to focus on saving for retirement, as well. If you wouldn’t have a monthly mortgage payment, you might be tempted to use that money to make other large purchases, like an expensive car. Deciding to pay off your mortgage puts things into perspective and gives you a chance to focus on your future plans.
  4. Build equity. Paying off your mortgage means that, if you ever need money once you are retired, you can take out a loan against the equity in your home or sell the home and have access to all the equity in it. You can use the money to pay your medical bills, buy a condo, or even for traveling (Read: Home Equity Loan).
  5. Avoid higher interest rates if your rate is adjustable. Adjustable-rate mortgages can be either advantageous or disadvantageous, depending on how the interest rate fluctuates. If the interest rate keeps rising, then you might end up with a larger down payment during your retirement years, so paying your mortgage off makes sense.

Not paying off your mortgage before retiring makes sense in some cases, but not having to pay a large bill each month is more beneficial. Unless you have to dip into your savings and retirement accounts to pay off your mortgage, the peace of mind that not having a mortgage brings outweighs the pros of keeping your mortgage during your retirement years.

4 Reasons Why Your Underwater Mortgage Won’t Be Saved By Eminent Domain

Underwater MortgageMany home owners have been affected by the recent housing market crash. Many people have lost their homes to foreclosure, while others ended up owning a home that is worth much less than it did when they bought it. Having to pay back a mortgage loan for a home that is worth much less than it did before the crisis will make most home owners want to get rid of it. Unfortunately, selling your home for less than you owe, means that you will have to pay back the difference to your lender.

Abandoning your home if your mortgage is underwater is a solution, but you will have to live with the consequences of foreclosure (Read: The Foreclosure Process). Having your credit ruined and not being able to take out a new loan for several years is not an option for most people. Because many home owners are underwater on their mortgage and facing foreclosure, many municipalities have started looking for solutions to avoid having to deal with whole neighborhoods of deserted homes. One of the ways in which counties and cities are trying to help home owners who own more than their homes are worth is eminent domain. Click here to read more.

What is Eminent Domain?

The power of eminent domain allows the government and its agencies to take private property and use it in a way that benefits the public. For example, the government can use a seized property for a school, a park, a new road and more. The owner of the property that is seized by the government under eminent domain is entitled to compensation, which is usually the fair market value of the property.

The government agency that is interested in your property hires an appraiser who will inspect and appraise the property, after which the organization makes you an offer. The offer will generally be low, but there is some room for negotiations. After the negotiations, if you are not satisfied with the offer, the organization will schedule a public hearing in which it will have to prove why your property is needed for public use. After the public hearing, the government agency will submit a complaint against you in court, which you can challenge, but it will be most likely overruled. Your attorney will have to obtain appraisal reports from other appraisers in order to determine the property’s fair market value.

Eminent domain can also be used to help home owner whose mortgages are underwater. Some analysts say that underwater mortgages slow down the economy, so using eminent domain will help the economy and allow people to stay in their homes. Others say that using eminent domain to save underwater mortgages will hurt the economy because lenders will react to this by increasing interest rates. Click here to learn more about the restrictions.

Reasons Why Using Eminent Domain Won’t Save Underwater Mortgages

Using eminent domain to save underwater mortgages was attempted in a few Californian cities back in 2012. The plan was abandoned because it didn’t receive the public support that was expected, and was strongly opposed by mortgage regulators Freddie Mac and Fannie Mae. While the plan to use eminent domain to come to the rescue of those with underwater mortgages sounds fairly good in theory, it has plenty of disadvantages. Here are the reasons why your underwater mortgage won’t be saved by eminent domain.

  1. The eminent domain process is very complicated. Many home owners won’t agree to this method because they probably won’t receive as much money as their home is worth at current market prices. Each home is different, has unique features, so designing a simple plan will be very difficult and will become bureaucratic.
  2. Eminent domain can be abused. Most people don’t support this plan because it can easily be abused, so some home owners may receive more than they deserve for their properties, or less. Also, home appraisals rely on the appraiser’s judgment, so there is a chance that mistakes will be made, and many properties will be appraised incorrectly.
  3. Lenders and mortgage regulators oppose this solution. Fannie Mae and Freddie Mac, who guarantee 90 percent of all mortgages issued in the United States, do not agree with using eminent domain to save underwater mortgages, so they are threatening with limiting business activities in cities that use this solution.
  4. The government will be put in an awkward position. Because mortgages are contracts between lenders and borrowers, a government intervention will not be well received by most lenders. The government usually refrains from interfering with private contracts.

Saving underwater mortgages by using eminent domain may seem like a good idea, but there are serious repercussions to following this plan, and most cities will most likely try other methods of helping those with underwater mortgages (Read: How These Alternatives Can Help You Avoid Foreclosure). Eminent domain has its uses, but using it to save underwater mortgages will only cause controversy and put the government in a bad light.

5 Important Reasons Why You Should Pay Off Your Mortgage Sooner Than Later

Pay Off Mortgage EarlyPaying off a mortgage loan takes a very long time, especially if it’s a 30 year or longer loan, so you might want to pay it off earlier than that. While paying off a mortgage sooner than its term has its disadvantages, like being left without savings or not being able to invest the money instead, it can also be very beneficial for most borrowers. The peace of mind and savings in interest that paying off your loan sooner bring can far outweigh the negatives (Read: Should You Pay for You Home In Cash Upfront?).

A mortgage payment is most people’s highest monthly bill, so getting rid of it will free up a significant amount of money each month. That money can make your life a lot easier. You can afford to pay off other debt, take out another loan, or use it to live better. Unfortunately, in order to pay off a mortgage earlier, you will have to come up with a large sum of money if you want to pay everything all at once, or more money each month if you decide to pay it off by making extra mortgage payments. Unless you have significant savings, inherit a large sum of money, or receive a pay increase from work, you are facing some difficult financial times until the debt is paid.

Ways to Pay Off Your Mortgage Early

There are several ways in which you can take care of a mortgage loan earlier than its term. Some methods are quicker than others, or require a larger sacrifice, but all of them will help you get rid of your mortgage quicker than the loan’s original term. Here are the most popular ways of paying off your mortgage early.

  • Pay more each month or make extra payments. You can add an extra amount to each monthly payment each month in order to pay off the loan early. Alternatively, you can choose to make a mortgage payment every two weeks instead of each month, which will result in 26 mortgage payments made each year, instead of only 12.
  • Pay a large part or your entire mortgage at once. You can use money from your savings, investments, bonuses or an inheritance to pay off a portion of your mortgage or even all of it.
  • Refinance into a shorter term. Refinancing your mortgage loan into a loan with a shorter term will make your monthly payments larger, but, if you can afford it, it will help you save significantly in interest (Read: Things to Remember Before Refinancing a Mortgage).

Reasons Why Paying off a Mortgage Sooner is Beneficial

Depending on several factors, paying off your mortgage sooner than later can be to your advantage (read more here). Generally, the benefits outweigh the downsides, but taking this step is not something that many home owners can afford to do. Unless your interest rate is really low, you should do your best to try and pay off your mortgage loan early. Here are some of the reasons why this is a good choice.

  1. Peace of mind. Like most people, you probably have a lot on your mind. Taking care of your largest monthly bill will surely relieve a significant amount of stress, and make your life and your family’s life much easier. Truly owning a home is a great feeling, and you shouldn’t wait until you are old to experience it (Read: Are You a Twenty-Something Wanting to Buy a Home? Here’s What to Know). Not having to pay a mortgage anymore also means that you have other possibilities of investing and you are more in charge of your financial life.
  2. Savings in interest. With a 30-year mortgage loan you pay almost as much on interest as you do on the principal. Paying the principal early means that you will save tens of thousands in interest. Making just an extra mortgage payment per year can save you thousands of dollars.
  3. Improve your credit score. As long as you have a large debt, you are considered a large risk, and your credit score will reflect that. Once you get rid of your mortgage, your credit score improves, and you will be able to qualify for more credit. You can get new loans, for buying a car or even a new home, because your cash flow will be larger (Read: Top 10 Components for Maintaining a Good Credit Score).
  4. Avoid the risk of losing the home. Investing money while you still have a mortgage is riskier because, if something goes wrong with your investments, you risk losing your home as well. Also, losing a job or having large medical bills will increase the risk of losing your home. If your mortgage is paid off, the home is yours and you don’t risk losing it to foreclosure anymore.
  5. Most times it makes sense financially. Some people will argue that you lose the tax break, or you could earn more if you invest the money. That may be true is some cases, but the tax deduction argument is often exaggerated, and you are probably saving more in interest than you would make on an investment. To read more click here.

Even though there are reasons why paying off a mortgage early is not recommended, most of the times the benefits of doing it are far greater than the alternative. Sure, having cash on hand for emergencies and making other investments makes sense, but so does avoiding paying tens of thousands in interest. But probably the biggest advantage of paying off your debt sooner is the peace of mind that it gives you. Living with the knowledge that you can lose your home if you come across financial problems is very stressful, so paying off your mortgage early not only saves you money, but also allows you to enjoy life better.

4 Things Home Buyers Should Look Out for With Mortgage Rates on the Rise

Mortgage Rates RisingBuying a home is something that most people hope to achieve in their lifetime. Owning the home that you and your family live in gives you a sense of security that you don’t normally get if you are renting or living with your parents. When you own a home, you can customize it based on your preferences, improve it, and more. Unfortunately, there are many factors to consider when buying a home, especially if it’s your first time. (Read: Current Interest Rates for Home Loans – Is it Time for You to Apply?)

Unless you have a perfect credit score and a very good income, qualifying for a mortgage will prove to be fairly difficult. There is always the chance that you will qualify for less than you need, or even be rejected because of your low credit score or for being unable to prove to your lender that you are not a high default risk. Once you get passed the approval process, you will find out that the initial cost of a mortgage is very high, and will probably require you to spend all your savings at once. Between the down payment and the closing costs, you are looking at tens of thousands that you will have to spend before you can even move into your new home.

The Mortgage Interest Rate

Besides the price of the home, there are other aspects of the mortgage which will determine how much money you will be spending. One of the most important aspects of a mortgage loan is the interest rate. Mortgage rates fluctuate frequently, and make a huge difference in how much money you will be spending on your mortgage loan.

Qualifying for the best interest rate requires you to have a perfect credit score, a large income, and make a large down payment. The interest rate will also be affected by how long the loan repayment period will be. With a longer term, your monthly mortgage payments are lower, but the interest rate will be higher. If you choose a shorter term and can afford to make much larger monthly mortgage payments, then your interest rate will be lower. By being a perfect borrower and choosing a short term, you can influence your mortgage interest rate (Read: Mortgage Rates Forecast Vs. Home Mortgage Rates Today).

But there are other factors, which are out of your control, which have a larger effect on interest rates. The biggest influence on mortgage rates is the national economy. A rapidly growing economy will cause inflation, which will cause the Federal Reserve to attempt raising interest rates in order to slow down the economy. When the economy is struggling, the Federal Reserve will usually reduce interest rates in order to stimulate the housing market. Also, when there is a large number of new mortgage loans being originated, investors tend to avoid purchasing these loans, so interest rates are increased.

What Buyers Should Keep in Mind When Interest Rates are Rising

Rising interest rates usually make home buyers think twice before buying a home, or even give up on buying a home. Higher interest rates make buying a home more expensive, so many home buyers might get discouraged. However, in this economic climate, there are some things that you should keep in mind when buying a home, even when interest rates are rising.

#1 – Demand for Houses Will Be Higher

Mortgage interest rates are rising because the economy is strengthening, so buying a home right now is not such a bad idea. Rising interest rates mean trouble when they are rising on their own, but, if they are doing it together with the strengthening of the economy, it means that the demand for homes will still be high. So buying a home before interest rates increase even more is actually a good idea. Follow this link to read more.

#2 – A Lower Inventory

Buying a home before interest rates increase more may be difficult because inventories are low. This may be a problem for many buyers who are looking to buy a home right now, before an even larger increase in mortgage rates. The economy is recovering, so there is a large demand for homes, but inventories are pretty low, so the chances of finding a home that will suit your needs are slim. Statistics show that most home buyers worry about not finding a home that they like more than they worry about the rising mortgage interest rates. To read more about the effect of this on the housing market click here.

#3 – Looser Qualification Requirements

Qualification requirements are still fairly strict. Rising mortgage rates are a small problem if you are unable to take out a mortgage loan in the first place. Lenders are trying to protect themselves more than ever from giving out loans to borrowers who are a high default risk. Fortunately, because interest rates are increasing, refinancing will slow down, so lenders will, most likely, loosen their requirements for home purchase lending in order to attract more home buyers. Recently, when interest rates were near record lows, lenders were making most of their money from the large increase in refinances, but, with increasing mortgage rates, the number of refinances will start to decrease significantly.

#4 – Renting is Still More Expensive

Don’t think that, because interest rates are rising, renting will be cheaper. Buying a home will be more and more expensive than before when interest rates are increasing, but renting will still remain the more expensive option, unless mortgage interest rates rise to over 10 percent (Read: Take Advantage of Today’s Historically Low Rates).

Rising mortgage rates will make home ownership unattainable for some people, but time can be a bigger enemy. Waiting for interest rates to decrease can be a big mistake, because it may never happen and you will be losing money by renting instead of buying. On the bright side, rising mortgage rates will strengthen the economy and allow more people to qualify for a mortgage.

3 Reasons It Is Going to Be Harder to Get a Reverse Mortgage

Tighter Reverse Mortgage RestrictionsReverse mortgages have been giving home owners over the age of 62 the chance of borrowing money against the equity in their homes. Seniors are usually on low fixed income, so reverse mortgages are very helpful for those who wish to pay off some debt, have unpaid medical bills, or simply need the money for living expenses. Not having the chance of finding a better job or investing money into something that will generate a profit can be really tough financially on seniors, especially when compared to younger people.

Reverse mortgages allow those who qualify to borrow money in the form of a lump sum, which allows them to take out the entire loan proceeds at once, receive the money as monthly payments, or receive as a line of credit. The money that you take out from a reverse mortgage can be used for virtually everything, from paying off your mortgage to paying for utilities and food (Read: You Can Borrow How Much With a Reverse Mortgage?). This is a great way for seniors to acquire some much needed money without having to worry about paying it back. The debt must be paid off if the home owner moves, sells the home, or dies. If the borrower dies, the remaining heirs will have to pay off the reverse mortgage if they want to keep the home. If the heirs decide to sell the home, they come into possession of any equity remaining after selling the home.

Unfortunately, it looks like taking out a reverse mortgage is going to become more difficult. People who were hoping to take out a reverse mortgage in order to resolve their financial problems will, most likely, have to look at other loan options as well. New rules will now impose stricter limits on how much someone can borrow with a reverse mortgage. The pricing of a reverse mortgage will change and the requirements will become much tighter. To read more about the tightening restrictions click here.

Why are There Changes Being Made?

After the economic crisis, more and more home owners took out reverse mortgages because they were having a difficult time making ends meet. Most of these borrowers took out the whole loan amount at once, putting a strain on the program’s funds. Lenders also recommended taking out the money as a lump sum because they were being paid more than when borrowers took out the money as monthly payments or lines of credit.

Lenders were unable to recuperate all the money that they gave out because home prices went down, so the reverse mortgages were not paid off in full. This has also hurt the reverse mortgage program, making these changes inevitable. Most reverse mortgages are backed by the Federal Housing Administration (FHA), who is implementing these changes in order to strengthen the program. The FHA is hoping that borrowers will start treating the equity in their home more carefully by tapping it slowly than before. Go here to read more.

What Will the Changes Be and How They Will Affect You?

Before these changes, almost anyone who met the basic qualifications could take out a reverse mortgage. Borrowers pretty much only had to be 62 or older and use the home as a primary residence. But things are about to change, so here are 3 reasons why getting a reverse mortgage will be harder.

Reason #1 – Reverse Mortgage Loan Limits

The amount that the borrowers can withdraw in the first year will be reduced by 40 percent. For example, if a borrower was eligible to withdraw $250,000 before the new rules, he or she will only be able to withdraw $150,000 once the new rule regarding the first year withdrawal is implemented. Borrowers whose existing mortgage and other debts exceed the 60 percent limit will be able to withdraw a little more. Home owners will have to pay off those debts, which are considered mandatory obligations, so they can withdraw enough to pay them, plus an extra 10 percent of the maximum amount that is allowed. Credit cards do not count as mandatory obligations, so borrowers cannot take out extra money to pay them off.

Also, the two types of reverse mortgages that are available now, the standard and the saver, will be pretty much eliminated and consolidated into one reverse mortgage. The amount that you can borrow will still be influenced by the youngest borrower’s age, the value of your home, and the interest rate. However, once the new reverse mortgage rules are implemented, most borrowers will have access to 15 percent less equity.

Reason #2 – Reverse Mortgage Pricing

The cost of taking out a reverse mortgage will be calculated based on the amount that is borrowed. Borrowers who take out more than 60 percent of the allowed amount in the first year will have to pay higher upfront costs. People who stay within the limit will pay .5 percent of the appraised property value as an upfront mortgage insurance premium, while those who go over the 60 percent limit in the first year will have to pay a 2.5 percent mortgage insurance premium. The annual mortgage insurance premium will remain 1.25 percent of the loan balance for both types of borrowers (Read: Want a Big Cash Payout? Don’t Look to Reverse Mortgages!).

Reason #3 – Reverse Mortgage Qualifications

The new reverse mortgage rules require lenders to make sure that their borrowers are able to afford paying property taxes and insurance during the life of the loan. Lenders will have to analyze the borrower’s income and credit history before giving out a reverse mortgage.

Lenders will also need to factor in the borrower’s living expenses, such as utilities and property related costs, and determine if the borrower has enough money left to pay for insurance and taxes. If your lender comes to the conclusion that you are unable to pay your taxes and insurance after all the other expenses, you will be asked to set money aside or it will be deducted from your reverse mortgage payments (Read: Reverse Mortgages – Not the Smart Investment You Thought They Were).

Conclusion

All these new rules and requirements have the potential of disqualifying many borrowers that would have easily qualified for a reverse mortgage in the past, but should not be a big problem if you take the time to work on your budget a little bit. Taking out a reverse mortgage is becoming harder, so it would be wise to look into other types of loans, as well. Reverse mortgages are designed for seniors, but that doesn’t mean you won’t be able to take out another loan, if it suits you better.

Filling Out Mortgage Loan Applications Just Got Easier!

Filling Out Mortgage ApplicationsBuying a home may seem like a difficult and scary process, and many home buyers are afraid of doing everything themselves. It is true that you should ask for help if you don’t understand how the process of taking out a mortgage loan works from start to finish, but you should also know that it is something that you can learn on your own (Read: Here’s a Cheetsheet to Understanding House-Pricing Indexes).

Buying a home with a mortgage used to be a hassle in the past, but the housing industry has changed significantly. Most lenders do everything in their power to make your mortgage loan application process easier and quicker. With the help of your computer and the Internet, you can even do it from home, without having to run around town signing a bunch of papers (Read: More People Turning to Online Mortgage Loans – Should You Too?).

Gathering the Necessary Documents

It is recommended that you obtain some, if not all, of the documents needed when applying for a mortgage before you even apply, just to make things go quicker. This may seem like a scary task for some home buyers, but, with a simple phone call, you can find out which documents you will need before you visit the lender for the first time. Sometimes you can even find out which documents you will need by simply visiting your lender’s website.

Lenders can also gather these documents on your behalf, sometimes for a small fee, and sometimes for free. Asking your lender before you start piling up papers about your finances is better than doing it on your own and finding out that your lender already has access to some of the documents that you had to wait in line for.

Here are some of the documents that you will most likely have to have on hand when you apply for a mortgage loan:

  • Residence History. This is a list of the places where you have lived in the past couple of years. You will only have to type up a list, and provide a letter from your landlord if you have been renting, which should verify that you have paid your rent on time.
  • Income. You will also need documents that verify your income for the past two years. Tax returns, W-2 forms, and pay stubs should be all you need to prove your income, unless you are self-employed, in which case you will need to provide additional documentation (Read: Self-Employed? Here’s How You Can Qualify for a Mortgage!).
  • Additional Income. If you have income from child support or alimony, find out if your lender needs it and for which period.
  • Gifts. If you receive part or all of the money that you are using as a down payment from someone as a gift, your lender will want to see a signed letter from the person who made the gift.
  • Assets. Documents that list your assets. You will need statements form your bank accounts, both checking and savings, IRA and mutual funds.
  • Debt. In addition you will need a list of all your current debt. Since your lender can verify your credit report, this list will only help you make sure that everything in your credit report is correct.

There are several other documents that your lender will want to see when you apply for a mortgage loan, so checking with them a few days before will help, and give you enough time to find these documents.

Applying for a mortgage is not as difficult as it seems. Yes, you will need to provide several documents which you may not know where to get, but, with a simple Internet search or a few phone calls, you can quickly get the help that you need and get on the right track to applying for a mortgage loan and becoming a home owner (Read: Buying Your First Home: The Process from Start to Finish).

Mortgage Rates Forecast Vs. Home Mortgage Rates Today

Mortgage Rates Forecast Vs. Home Mortgage Rates Today- 150x150Today’s home mortgage rates are very close to the record lows registered at the end of last year. They have been slowly increasing since then, and there are signs that they will keep increasing. With this in mind, you are probably wondering if you should buy a home now or wait longer. Increasing rates are always bad news for people who wish to become home owners, but mortgage professionals don’t think that rates will rise unexpectedly just yet.

Mortgage rates have been slowly increasing and decreasing since the start of the year, and most analysts don’t think that we will see any major changes in the near future, but they expect a slight increase this year. The recovering economy seems to be slowly growing and there is an increase in job growth, both of these giving confidence to investors and home buyers, so the rates will most likely start going up.

Home Mortgage Rates Today

With current mortgage rates near all-time lows, an increase in home sales and refinances has been recorded this year. The economy, which has the largest influence over mortgage rates, is experiencing more and more growth and, unless a new crisis arises, it will keep growing in the following years. So 2013 might be the last year when mortgage rates will be close to record lows, meaning that acting now might save you money.

Securing a low interest rate on your mortgage means that you will pay less overall for your loan. The current rate for a 30-year fixed-rate mortgage loan is 3.6 percent, while the rate for a 15-year fixed-rate loan is 2.80. Not the lowest they have ever been, but pretty close, and they might not stay in this range in the near future. Rates have been steadily increasing since last November, but are still considered low, so today’s low mortgage rates might be the perfect opportunity for you to become a home owner.

Mortgage Rates Forecast

Like most home buyers, you are probably looking towards the future, and not the past. Low mortgage rates might be a thing of the past, but, according to specialists, they won’t increase significantly and surprisingly in the next months.

The Federal Reserve’s recent actions have kept mortgage rates at a low level. The government has been purchasing mortgages from the lenders, allowing them to lend more money to borrowers, while keeping mortgage rates low. But the government’s help won’t last indefinitely, and the mortgage rates will start to increase more significantly.

The mortgage rates are expected to go above 4 percent by the end of this year, and probably over 4.5 percent by the end of 2014. While this might not seem like a lot, especially for a first time home buyer, the difference will add up over time, and the 1 percent difference in current and future rates will actually mean that you will be paying thousands more on your mortgage loan.

As long as no major events happen in the United States or internationally, like a new war or a major event in the financial world, the mortgage rates will most likely continue their upward trend, at least for the near future. As the economy continues its growth, the mortgage rates will be affected by it, but it looks like it will only be a slow, but steady, increase for the next couple of years.

If you are planning on buying a home, this might be the perfect time to start looking. Not only are the mortgage rates expected to grow, but other costs associated with mortgage loans will experience an increase in the near future. Mortgage rates might still seem fairly low at the expected 4 percent by the end of 2013, but every small increase means more money out of your own pocket, and a more expensive and harder to repay mortgage loan. So, if you think you have done all the research and have a full understanding of what buying a home entails, purchasing a home at today’s mortgage rates is probably a better idea than waiting a few more months or years.

What is a Bridge Loan?

What is a Bridge Loan-150x150Also known as a swing loan, or interim financing, a bridge loan is a type of very short-term loan that is normally given out to an individual or a business until they can secure permanent financing. Bridge loans are commonly used in the housing market, and are generally used by home buyers who are buying a new home when their old home is still for sale. Bridge loans feature fairly high interest rates and must be backed by collateral, such as your home.

When you use a bridge loan to purchase a new home, but your old home is still on the market, the current home is used as collateral, and the funds from the bridge loan are generally used as a down payment towards your new home. In this case, the bridge loan will be repaid when the old home is sold.

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Advantages and Disadvantages of a Bridge Loan

When looking for a new home either to live in, or just for a short-term investment, you will most likely need a loan. Unfortunately, securing a conventional loan will take you a lot of time and will require you to respect some strict mortgage loan qualification requirements. Another problem you might face is that, if you plan on buying a new house while your current house hasn’t sold yet, you will most likely be denied a conventional loan, because you will be considered a higher risk for default. Your best choice in this situation is to take out a bridge loan, which features a few distinct advantages over conventional loans. Here are the most important ones:

  • Bridge loans are short-term loans. Most conventional loans are designed for people who want to pay for a mortgage or college tuition, and require you to pay the loan off over a long period of time. A long-term loan will increase your risk of suffering some kind of financial issue. Bridge loans, on the other hand, are designed to be paid off in full before you receive the long-term loan for your new home.
  • The option to choose when to repay the bridge loan. Bridge loans can be repaid before you receive the long-term mortgage loan needed to buy a new home, or after receiving this loan. If you repay the bridge loan in full and on time before you receive the new loan, you will significantly increase your credit score, allowing you to qualify for more mortgage loan options.
  • No set qualification guidelines. Bridge loans don’t come with any set limits or qualification guidelines, like a conventional loan would have. Bridge loans can also be turned into regular mortgages by the lender.

Of course, like any loan, bridge loans come with advantages and disadvantages. Here is what you should keep in mind before applying for a bridge loan:

  • Larger payments and penalties. Being short-term is an advantage that bridge loans have, but this may also be regarded as a disadvantage. Repaying the loan in a short period of time means that the monthly payments will be larger than with a conventional loan. Lenders are also stricter when it comes to late or missed monthly payments on a bridge loan. The fees and penalties are larger for a missed payment on a bridge loan than for missed payments on a conventional loan.
  • Dependent on more permanent financing. You may rely on the mortgage loan that you are applying for in the near future to repay the bridge loan, but there are no guarantees that you will receive that loan. In case not everything goes as planned, you will have to repay the bridge loan from your own pocket. Another choice would be to take out a new loan in order to pay the bridge loan, but that could lower your credit score, create new debt for you, and ultimately make it harder for you to receive financing for a new home.

Before deciding on a bridge loan, make sure that you understand what your rights and responsibilities are, and carefully weigh in on both the advantages and the disadvantages of this type of loan. Your financial situation is the most important factor to be taken into consideration before deciding which path to take.

What is Mortgage Amortization?

What is Mortgage Amortization- 150x150Mortgage amortization is the systematic repayment of calculated interest and principal over a previously determined period of time. Basically, it is the process of repaying a mortgage loan through monthly payments. During mortgage amortization, the principal on a mortgage loan declines, as the borrower makes monthly payments. Each time a payment is made, a part of it goes towards reducing the principal, and another part of the payment goes towards paying the interest on the mortgage loan.

The Mortgage Amortization Process

When you take out a mortgage loan, the lender sits down with you to determine your monthly payments over the life of the loan. These payments must be something that you are comfortable with, that you can fit in your budget. These payments must be made on time and, more importantly, in full, including the interest and a portion of the principal, in order for the mortgage to amortize. When the mortgage loan is paid off, your mortgage is fully amortized.

In case the mortgage amortization is not happening, the lender must adjust your monthly payments, so that you are paying against the principal. This might make your monthly mortgage payments increase suddenly, which may cause financial issues.

When mortgage amortization starts, in the early years of paying off a loan, most of the monthly payments that you will make will be applied to the loan’s interest, and only a small percentage will go against the principal. As more of the principal is paid over the years, the interest starts to go down, which will lead to a much faster mortgage amortization in the later years of the loan. As a result, the equity that you will have in your home will also increase faster.

When using an online mortgage calculator, it is harder to figure out how much money you will be paying over the life of the loan. Online mortgage calculators use data such as your down payment amount, the total amount of your loan, and your interest rate to give you an estimate of how much your monthly payment will be, but they won’t help you figure out the total amount that you will be paying by the time your loan will be paid off. High interest rate loans and long mortgage loan terms can result in you paying thousands more on your mortgage, sometimes even double the original loan amount.

How to Calculate a Mortgage Amortization

Both fixed-rate and adjustable-rate mortgages fully amortize at the end of the term, whether it’s a 15-year adjustable rate mortgage or a 30-year fixed rate mortgage, with the condition that monthly payments are made on time.

To calculate a mortgage amortization, you need to have knowledge of a few key factors that are involved in your mortgage loan, such as the periodic interest rate and the loan balance. To find out the first month’s interest rate, you must multiply the loan balance by the interest rate. To find out the principal, you must subtract the interest from the total payment. To find out the interest and the principal for the next month, subtract the previous monthly payment from the mortgage loan balance, then repeat the steps described above.

The Amortization Schedule

The amortization schedule is a table that presents each payment from a mortgage in detail. Amortization schedules are generated by amortization calculators, and they show how much of each monthly payment is the interest and how much is going towards the principal balance. While a payment goes towards paying both the interest and the principal, the exact amount varies, and needs to be calculated with an amortization schedule.

When shopping for a mortgage loan, make sure you fully understand the mortgage loan process, your rights and what is expected of you. Various online mortgage calculators can be of great help, but always be aware of the lender’s rules and conditions. Taking that extra precaution before deciding on a mortgage loan can save you a lot of money and hassle in the long run.

Tips for First Time Home Buyers

first-time-home-buyers-150x150The new year is still young and many people have not lived up to their resolutions yet. Are you one of those Americans whose resolution is to buy a house this year? Well, depending on how the market is, it could be the right or wrong decision. However, if you read up on basic knowledge and go in as an  informed buyer, you’ll be able to get the best home deal. Read on to learn about the benefits of having your own home and questions to ask yourself before buying a home.

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Benefits of Having Your Own Home

You might be very nervous or anxious about owning your own home in the near future. While nervousness is normal, you can make yourself feel more prepared and ready to embark on your home buying journey by acquainting yourself with some of the potential benefits of having your own home.

  • Pride. Just imagine the satisfaction you’ll feel walking around your own home. When you are finally able to enjoy your own home, it will make you feel better about all of the expensive monthly payments you’ll be making for a long time. You can paint it the way you feel and make the home your own.
  • Appreciation in value. Even though the value of property keeps fluctuating sometimes, it is advantageous to have your own home because it generally rises. This has been established from the values of homes provided by the Office of Federal Housing Enterprise Oversight. This is an important tool against economic downturns like inflation.
  • Privacy. If you are used to renting a home or apartment life, you may be used less privacy, dealing with noisy neighbors, and property managers. Owning your own home will allow you to have significantly more privacy as well as security with alarm systems, deterrents and extra locks.
  • Tax incentives. Our taxation system encourages every person to have their own home. If you have taken out a mortgage loan to purchase a home then you can claim mortgage interest and property tax deductions as you file your tax returns at the end of each year. This is a double advantage: pay less and claim ownership.

Golden Tips for First Time Home Buyers

Buying a home is a long term to lifetime investment that requires serious dedication on your part.  Here are some tips that will make you decision savvy as you look forward to becoming a homeowner.

  1. Which type of home suits your needs? Imagine your family in a home- what kind of home is it? This will guide you a long way in deciding which type of home you need: a condo, townhouse, single-family home or multi-family home. Selecting the type of home you need in advance will help you save time in you search for the perfect house.
  2. Where is the home located? A home may have everything you need but the location could be unappealing. Do you love a reserved area in the outskirts of the city or do you love staying close to town? What about the neighborhood? The location and the surrounding environment should be critical factors you need to consider.
  3. Which features do you want in a home? Money can buy a house but not a home. And to build a happy home, you need to check for the features you want. These may include the size and nature of the house and neighborhood, layout, number of bedrooms, roof type and general aesthetics.
  4. What is the average market price of such a home? Establishing the average selling price for a home in your area is very important. The local listings for your area and an online search will help you to know the price beforehand. The market price value will help you to avoid paying too much for a home you could have owned for a lower price.
  5. How much can you afford? Check the average market interest rate and the individual rates charged by various lenders. Using a mortgage calculator, determine the cost of the home and compare it to what you can afford with all of your income sources that you intend to commit to the mortgage. Fannie Mae has recommended that a home shouldn’t cost you more than 28% of your overall income. Once it exceeds this value, you may not meet other household expenses.
  6. How much are closing costs? The price of the home (excluding the closing costs) may appear ideal. That’s why you need to inquire about the overall closing costs so that you make an informed decision after knowing the real total of the house. Closing costs may comprise of settlement fees, lender’s fees, title fees and homeowner association fees.
  7. Who will guide you through the purchase? If you aren’t a real estate guru then you may consider hiring the services of a real estate agent or mortgage broker to assist you in finding the right home. They will also help you with all the paperwork from the lender to the lawyer.
  8.  Bargain on the price offer. The US market is friendly and you can always bargain on the price offer quoted by the seller. You will often have the best luck bargaining on the price in the first three months of a new year when the market is still dormant. During these times you will enjoy some fringe benefits.
  9. Weigh the financing options available. A first time buyer has a wide range of financing options, ranging from loans backed by Freddie Mac and Fannie Mae to loans which don’t require you to meet the minimum standard down payment of 20% of the value of the home. Use a mortgage calculator to determine the monthly repayment and determine the impact that each option would have on your financial peace.
  10. Look at the bigger financial picture. While owning a house gives you a title of prestige and pride, keeping up with your home ownership can be expensive and labor-intensive. Remember you will not have a landlord to turn to when costs for roof repairs, new appliances and utility connection issues arise. You should be very sure that you will be able to manage these expenses to avoid breaking the bank.

These tips may not exhaust all that you need to know before becoming a homeowner. Overall, the more you know about what you expect as a potential homeowner, the more you avoid disillusionment and regret. This is the key to being a successful homeowner.