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.

The Sooner You Know About Hybrid Mortgage Loans, the Better

Hybrid Mortgage LoansThe large majority of people who are purchasing a home do it by taking out a mortgage loan. Buying a home with cash is something that very few people can afford, and it’s not always a good investment (Read: Should You Pay for Your Home in Cash Upfront?). But mortgages come with interest rates, closing fees and many other costs, so finding a cheap mortgage becomes the number one priority when buying a home. Fortunately, there are many options out there when it comes to mortgages, and each are designed for certain categories of people.

The most popular mortgage loans feature fixed or adjustable interest rates. A fixed interest rate means that you will be paying the same interest rate for the duration of the loan, which means that you won’t have any surprises down the road. Adjustable interest rates fluctuate during the life of the loan, which means that you might have to pay either more or less in interest during the course of the repayment period.

The fixed-rate mortgage is considered safer than the adjustable-rate mortgage because the interest rate will remain the same, so you will always know how much your monthly payment will be, but sometimes an adjustable-rate mortgage may be a better deal (Read: Even With Fixed-Rate Mortgages So Low, Don’t Overlook Adjustable Rates!). Another type of mortgage is a combination of the fixed-rate and the adjustable-rate mortgages, and it is called a hybrid mortgage.

What is a Hybrid Mortgage Loan?

A hybrid mortgage loan is both a fixed-rate mortgage loan and an adjustable-rate mortgage loan. The hybrid mortgage starts off as a fixed-rate mortgage, and then converts to an adjustable-rate mortgage. During the fixed rate period, which can be up to 10 years, the interest rate remains unchanged. When the initial period ends and the mortgage is converted to an adjustable-rate mortgage, the interest will increase or decrease, based on several indices, annually until the end of the repayment period.

Hybrids are normally referred to as a 5/1 mortgage, for example. The first number represents the fixed interest rate period of the mortgage. In this example, the hybrid mortgage will have a fixed-rate period of 5 years. The second number represents the adjustment interval that will be applied once the fixed-rate period is over. In our example the interest is adjusted once every year.

Pros and Cons of the Hybrid Mortgage Loan

Like most mortgage loans, the hybrid mortgage is also designed to accommodate the need of a particular group of home buyers. Here are the benefits of such a mortgage:

  • Compared to 1 year adjustable-rate mortgages, hybrid mortgages have lower risk, and a lower interest rate when compared to most fixed rate mortgages.
  • Hybrid mortgages are a great choice for home buyers who only wish to live in the home for a predetermined period of time.
  • The interest during the fixed-rate period will be lower than the interest on a 30-year fixed-rate mortgage, making this type of mortgage a great choice for those who don’t plan on living in the home for a long time (Read: Is Flipping Houses for You?) .
  • There is always a chance that the interest will decrease during the adjustable-rate period, making the monthly payments and overall loan value lower.

The largest downside of hybrid mortgage loans is that once the initial period is finished, there is a large risk that your interest rate will increase significantly, making it hard for you to pay your mortgage on time each month (Read: Do You Recognize the Early Warning Signs for Increasing Home Interest Rates?). Most hybrid mortgages have a maximum interest increase set, usually 2 percent per year, but that 2 percent can mean a lot of money, depending on how much you have borrowed.

Hybrid mortgages are great for those who wish to remain in the home for less than 10 years, and they can work for some others as well. But before you start shopping around for any mortgage, be sure that you know what your budget is and how long you plan on living in the home. If it’s a short while, then you will actually save money with a hybrid mortgage, but if you plan on living for a long while, you should look at other types of mortgages.

Everything You Need to Know About Jumbo Mortgage Loans

Jumbo Mortgage LoansA mortgage loan is a very important product because it gives the majority of Americans access to home ownership. It would be quite difficult for most people to purchase a home without the help of a mortgage loan. Mortgages come in various shapes and sizes and are designed to accommodate the needs of most people, whether they are first time home buyers or real estate investors. Mortgages have several characteristics that differ based on the borrower’s needs and qualifications (Read: Are You Applying for a Mortgage? These Things Might Ruin Your Chances of Approval!) . One of these characteristics is the size of the mortgage loan.

Regular mortgage loans usually require a 10 to 20 percent down payment, certain debt-to-income ratios, and a good credit score. Depending on these factors, your interest rate might be higher or lower, and you may be able to borrow more or less. In some areas you won’t be able to buy a home valued at over $400,000 with a regular mortgage, while in others you can buy homes that cost over $700,000 by using a regular mortgage. That amount is more than enough for most people and families, but not enough for others. If you have the means to keep a large mortgage, you may want to borrow more than the maximum limit of regular mortgage. In that case, you should take a look at jumbo mortgages.

What is a Jumbo Mortgage Loans

A jumbo mortgage loan is nothing more than a regular mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. The limit varies from one area to another, so you can expect to have to take out a jumbo loan for a home that is worth a lot less than other homes in better areas. Generally, the maximum limit is significantly higher in more expensive housing markets.

Lenders take a larger risk when giving out jumbo loans, so they will be more careful when giving out this type of mortgage loan. A default on a jumbo loan would hurt the lender financially much harder than a regular loan. Jumbo loans typically require a 20 percent down payment, which means that the borrowers have a larger investment in their homes, making them less of a default risk. Lenders require a very high credit score, which means that the borrower has a good history of repaying his or her debt, giving the lender more peace of mind (Read: How to Get a Great First Mortgage).

The Advantages and Disadvantages of Jumbo Mortgage Loans

Jumbo mortgages are a perfect choice for those who need larger mortgages, but they also have other advantages. Here are the most important advantages of a jumbo mortgage loan:

  • Just One Loan. By taking out a jumbo loan you won’t have to take out two or more different loans. Jumbo loans provide the money that you need to make a home purchase, and allow you to avoid having to take out multiple loans, which can be pretty complicated (Read: Taking Out a Third Mortgage – Is That Possible?).
  • Low Rates. Interest rates on jumbo loans are low. Interest rates on jumbo loans have started to decrease in 2009 when the federal stimulus package was introduced.
  • Big Savings. Refinancing a jumbo loan can bring large savings. Refinancing any mortgage loan will usually bring savings, so refinancing a loan that is larger than usual can bring even greater savings.

Jumbo mortgage loans bring great advantages, but also have a few downsides. Here’s what you need to keep in mind when taking out a jumbo loan:

  • Higher Rates in Comparison. The larger the risk the lender is taking, the larger the interest rate will be. While interest rates on jumbo loans are lower than ever, they are still high when compared to interest rates on conventional loans (Read: Jumbo Loan Rates vs. Conventional Home Loan Interest Rates).
  • Less Approval. Qualifying for a jumbo mortgage loan is more difficult. You must have a great credit score and a large income to qualify for a jumbo mortgage loan. While you can get away with having a less than perfect credit score when applying for a regular mortgage loan, jumbo loans require a prefect or near perfect credit score (Read: Boost Your Credit Quickly With These Simple Tips).

Jumbo mortgage loans, like any other loan, are designed for borrowers with certain needs, and will not be a great choice for everyone. Knowing what type of mortgage you need is very helpful when buying a home. It can make the difference between a great purchase and one that will give you nothing but trouble along the way.

More People Turning to Online Mortgage Loans- Should You Too?

More People Turning to Online Mortgage Loans-Should You Too- 150x150You can buy almost anything online nowadays, so why not a mortgage as well? More and more home buyers are choosing to find a mortgage loan online instead of going around town and talking to lenders. Applying for a mortgage loan online seems to be significantly easier than doing it the old fashioned way, but you may be wondering what else it involves.

The biggest benefit of finding a mortgage loan online is convenience. You can get mortgage loan quotes and other information from multiple lenders in only minutes, without having to visit each of them individually, which would probably take up a lot more of your time. Applying for a mortgage loan online is even better than doing it by phone- no waiting on hold for a long time and being transferred several times until you find the person who can help you.

Finding Online Mortgage Companies

Many lenders are offering online mortgages, but they all have different rules which can be to your advantage or disadvantage. Some online mortgage lenders are banks and credit unions, which are the ones issuing and approving the mortgage loan. They can inform you of the interest rate that you qualify for, present you with your loan options, and answer all of your questions related to the mortgage. Applying with this type of lender can be very beneficial because most of your questions will be answered directly by the lender. However, in order to get the best deal, you will still have to shop around, speak with multiple lenders, and research all of the loan options that they are offering.

Another option when looking for an online mortgage is to speak with a mortgage broker, which will act as an intermediary between you and a lender. After you give them all of the necessary info, they will try to find the lender that offers the best possible interest rate and terms. Because a mortgage broker is an intermediary between you and the lender, he will handle all of the paperwork and do the research for you. However, mortgage brokers charge a large fee for their services, so if you have the time to shop around for a lender, you would probably be better off doing it yourself.

A third option when looking for an online lender is finding a mortgage referral website. After entering information about yourself and what you are looking for, these websites refer you to several lenders which you can compare in order to find the best mortgage loan deal. Mortgage referral services are easy to use, but you will have to go through the various offers and decide what better suits your needs and financial situation.

Tips for Applying Online for a Mortgage

While applying for a mortgage online is easier and has some great benefits, it also has some disadvantages. Here are a few things that you should keep in mind when applying for a mortgage loan over the Internet.

  • Use search engines. What better way of finding something on the Internet than by using search engines like Google or Bing? A few clicks and you can find some of the largest online mortgage companies. Of course, you can also use other sources in order to find online mortgages. Ads on TV, on the radio and in newspapers can also be very helpful when looking for an online lender.
  • Research the online mortgage companies that you are considering. Like shopping for a mortgage loan the old-fashioned way, you have to be careful when deciding which online mortgage lender you want to go with. Reading reviews about online mortgage companies and checking with the Better Business Bureau is something you should do once you find a lender with an attractive offer.
  • Have your financial info ready. Once you find a trustworthy lender that can give you a good interest rate and mortgage loan terms, make sure that you gather all of the necessary documents before they even ask you for them. You will need info about your income, your savings and your debt.

Online mortgage loans are an attractive alternative to conventional mortgage loans as long as you take all the necessary precautions. It’s easier for someone to scam you over the Internet, where you just enter your information without speaking to an actual person. That doesn’t mean that there aren’t legitimate online mortgage lenders. You just have to do a little research and make sure that what they are offering is what you will actually get.

Get a Mortgage Loan for Your Condo, It’s So Easy!

Get a Mortgage Loan for Your Condo-Its So Easy- 150x150Maintaining a house can be very time consuming and expensive. The owner of a house is responsible for taking care of the whole property and its surroundings. Repairing and maintaining the various parts of a house require significantly more time and money than repairing and maintaining a condo. Condos are a great alternative for those who don’t wish to deal with the hassle of owning a house, but there are several aspects of buying a condo with a mortgage loan that are different from buying a house. The differences between buying a house and a condo with a mortgage loan are mostly related to the fees that you will have to pay and the qualification requirements.

Prices for condos have decreased back when the housing market crashed and are recovering slower than house prices, so this might be a perfect time to buy a condo. You will find cheaper condominiums, but unfortunately, lenders have tightened their lending requirements because the condo market is so weak. When buying a house, you’re the only one that has to be approved for a mortgage loan, but when buying a condo, the condominium association must be approved, too. If the association has financial problems, there is a big chance that your mortgage loan application will be denied.

What’s Different When Getting a Mortgage Loan for a Condo?

Condominium prices may be lower than house prices, but the process of buying a condo with a mortgage is a bit different than buying a house with a mortgage. There are several aspects that you should keep in mind before getting a mortgage loan for your condo:

  • The association fees. When owning a condo, you are responsible for repairing and maintaining your unit, but keep in mind that the condo is part of a larger building that needs regular maintenance and repairs from time to time. The money needed for these repairs and maintenance work is raised by the condominium association. All condo owners will have to pay a monthly fee that goes into a fund to pay for maintenance, upkeep, repairs and other expenses. When finding out your debt-to-income ratio, your lender will also include the association fees in your monthly mortgage payment. Keep in mind that, over time, these association fees can increase, depending on how many repairs need to be done and on the cost of the materials.
  • Who backs the mortgage loan. Before buying a condo, make sure that it is approved for Fannie Mae, Freddie Mac and Federal Housing Administration (FHA) mortgages. If the property is not approved, you might have to pay a much larger interest rate and down payment. The FHA allows you to buy a condo with a much smaller down payment than on a conventional mortgage loan, but the Federal Housing Administration also requires that less than 10 percent of the condos have the same owner if the building is newly built. Mortgages backed by Fannie Mae and Freddie Mac require a higher down payment than the FHA and charge extra if your down payment is less than 25 percent.
  • Buying a non-warrantable condo. Condominiums that don’t qualify for Fannie Mae, Freddie Mac or Federal Housing Administration financing are called non-warrantable. Not being backed by the government makes these condos more expensive, with a higher interest rate and down payment, and much harder to find a mortgage lender willing to finance their purchase.

A condo is a good substitute for home buyers who find that owning a house involves too much work and cost. Condos are also cheaper than most single-family houses, but buying one using a mortgage loan is a little different than buying a house with one. However, a little research can go a long way and ensure that getting a mortgage loan for a condo can be a relatively easy process with no unpleasant surprises.

FHA Mortgages: Pros and Cons

FHA Mortgages-Pros and Cons- 150x150The Federal Housing Administration (FHA) mortgages are designed to help people with lower incomes become home owners. Tight lending requirements make it difficult for people with low incomes, less than perfect credit scores, and tight financial situations to obtain a conventional loan. The Federal Housing Administration insures the mortgage loan against default, so in the event that the borrower can’t make mortgage payments anymore, the FHA will pay.

Pretty much anyone can qualify for an FHA mortgage loan, but the amounts that you can borrow are usually close to median home prices in the area. In order to qualify for this type of loan, your debt to income ratio should be fairly reasonable and you should have a good credit score.

FHA Mortgages- Pros

FHA mortgage loans are not for everyone, but they do have a few advantages over conventional loans. FHA loans make it easier for people who can’t normally afford a conventional mortgage loan to become a home owner. Here are the most important pros of taking out an FHA mortgage loan:

  • It is easier to qualify for an FHA mortgage loan than for a conventional mortgage loan. Conventional mortgage loans have strict qualification requirements, making it harder for people with low to medium incomes and not so perfect credit scores to qualify. FHA mortgage loans, on the other hand, are designed by the government to help these people, by having less strict income and credit score requirements.
  • FHA loans require a much smaller down payment than conventional loans. Regular mortgage loans require a 20 percent down payment in order to avoid paying for insurance. 20 percent of a loan value can be a pretty hefty chunk of money, depending on how much your mortgage loan is for. Down payments for an FHA mortgage loan can be as low as 3.5 percent, making it easier for more people to become home owners.
  • FHA loans don’t come with a pre-payment penalty. Many conventional loans come with a pre-payment penalty, meaning that you will have to pay a penalty fee if you decide to pay off your loan before the end of its term. FHA mortgage loans don’t come with such a penalty, so you can pay off your loan or refinance at any time.

FHA Mortgages- Cons

FHA mortgage loans are designed to help people who can’t otherwise afford a conventional mortgage loan. Because of this, FHA loans come with a few cons, as well. Here are the most important:

  • You can’t borrow as much money as you would with a conventional loan. Because the Federal Housing Administration insures these loans, they will have to pay in case the borrower defaults. That’s why the amounts that you can borrow are lower than what you would be able to borrow on a conventional loan.
  • Many sellers don’t want to deal with buyers using an FHA mortgage loan. When the housing market is hot, sellers in a sellers’ market receive multiple offers on their properties. FHA mortgage loans are seen as a hassle by sellers, so your offer might be refused just because the seller doesn’t want to deal with an FHA loan.
  • You will have to pay a mortgage insurance premium. Conventional loans require the borrower to pay private mortgage insurance if the down payment is lower than 20 percent. FHA insured mortgage loans require an initial insurance payment of 1.5 percent of the loan value, and a monthly mortgage insurance premium of .5 percent of the loan value.

Mortgages backed by the Federal Housing Administration are a great way for those with lesser means to become home owners. Depending on each borrower’s situation, this type of loan can be a good or a bad choice. It is up to the home buyer to evaluate his or her financial situation and decide if an FHA loan is the best choice, or it would be better to look for a more conventional loan.

Self-Employed? Here’s How You Can Qualify for a Mortgage!

Self-Employed-Here's How You Can Qualify for a Mortgage- 150x150Being self-employed certainly has some great advantages, like not having a boss or setting your own work hours. But not being an employee also has its disadvantages, such as not having paid sick days or paid vacations. The biggest downside, though, is that buying a home is a bit more difficult. With all of the strict requirements, becoming a home owner is tough even for people with steady jobs. Not having a full-time job, a regular income and an employer’s tax form can make it even more difficult for a self-employed worker to get a mortgage loan.

However, it is not impossible. Buying a home when you are self-employed will require more documents than getting a mortgage as a full-time regular employee, and it will probably take longer, but it is doable. Most lenders will probably be worried that you won’t be able to make enough money to pay your mortgage, while others will simply not want to deal with the hassle of giving a mortgage loan to a self-employed home buyer.

Expectations When Shopping for a Mortgage

Most lenders will regard you as a high risk borrower, so you will probably have to pay a higher interest rate than someone who works for a company or an institution. Interest rates advertised by borrowers are really low, but they are normally reserved for home buyers with perfect credit scores and perfect financial situations. The rates that you, as a self-employed worker, will get will probably be much higher than the interest rates that are advertised.

Because you are not looked at as the ideal borrower, you will most likely have to shop around more until you will be able to find a lender who is willing to work with you. Also, your ability to negotiate a lower interest rate will most likely be very limited. Based on your loan-to-value ratio, you will probably have to come up with a larger down payment, as well.

Mortgage Loan Options

Lenders try to stay away from giving out risky loans in order to protect themselves, but there are a few types of mortgage loans that lenders may be willing to give to self-employed workers. One of these loans is the Stated Income/Stated Asset Mortgage loan, which is based on the amount that you declare is your income. The bank will not verify this amount, but you will be required to provide a large amount of documentation, from a list of your clients, to several IRS forms.

Another loan that lenders might give you is the No Documentation Loan, which is great for self-employed workers with low profit, or even those who don’t make any profit at all. However, you will have to pay a much higher interest rate, and probably make a larger down payment.

However, if you are able to provide your lender with enough documentation that proves your income, you can qualify for a regular mortgage loan, which has lower interest rates, and a lower down payment requirement. Traditional employees receive a W-2 form, which reports his or her income, but a self-employed person will have to provide other types of documents, such as tax returns, a business license, balance sheets or profit and loss statements.

Make Yourself Less of a Risk

If you are sure that you can afford a mortgage, and would like to encounter as less difficulty as possible when applying for a loan, you should start by making yourself less of a risk in the eyes of a lender. You should start by improving your credit score as much as possible. Besides making you qualify much easier for a mortgage loan, a perfect credit score will ensure that you receive a much better interest rate on your mortgage.

By making a larger than usual down payment, your lender will regard you as less of a risk. Also, having savings will look good in the eyes of a lender, as you will be less likely to abandon the mortgage if your business stops making a profit.

Lenders may regard you as a higher risk if you are self-employed, but the truth is that a person who is working a full job can be an even higher risk than a self-employed worker. A traditional employee loses all of his or her income when fired, while a self-employed worker probably has several clients, and the chances of losing all of them at the same time are slim. If your business is doing well and you can prove to your lender that you can make monthly payments on your mortgage, then there shouldn’t be any issues getting a mortgage loan if you are self-employed.

Mortgages for Unmarried Couples – What You Need to Know

Mortgages for Singles and Unmarried Couples - What You Need to Know-150x150A 2009 statistic shows that 8 percent of all home owners in the United States were unmarried couples. You don’t have to be married in order to purchase a home as a couple, but there are a few things that you should be aware of. Buying a home as an unmarried couple can lead to some serious problems in the future if the two parties haven’t taken the necessary steps to protect themselves. Many couples believe that they don’t need a document to prove their love, but the truth is that it’s harder, and probably more expensive, to get out of co-ownership of a home than it is to get out of a marriage.

When you and your partner are borrowing and spending tens, even hundreds of thousands of dollars, it would be a great idea to draw up a contract that would protect both your interests. Marriage is a legal contract, and without that contract, an unmarried couple will have to come up with a way of protecting themselves the same way a marriage contract does.

Writing up the Contract

Life is full of unforeseen events, so having a contract between two unmarried people who are buying a home together is a wise choice, which will prevent unpleasant issues in the future. Most arrangements in a couple’s life can be made through agreements, but buying a home together is a serious matter and both partners should protect themselves through a contract. Here are a few things that the contract between two unmarried people who buy a home together should contain:

  • Each partner’s share. An even, 50/50 split might not be a great idea if the two parties are not making equal contributions to the purchase of the home. One person may come up with the down payment, which is a large portion of the purchase price, so the contract could say that this person owns a larger part of the home. If one of the partners adds value to the home by fixing it or improving it, the contract could also give this person a larger portion of the home.
  • What happens in case of a break up. Splitting up takes its toll emotionally, but it would be even harder to go through if a home is involved. Nobody wants to think or talk about break ups when planning on buying a home together, but covering every possibility now is better than regretting it later. If the two partners have made different contributions towards the home, then they should plan on how they will get their money back in case of a break up.
  • The option of keeping the home. When a couple breaks up, one of the partners may want to keep the home, so the contract should say how much the other person will receive. A more difficult scenario is one in which both individuals want to keep the home, so the contract should address this issue as well.

Taking Out a Mortgage Loan

After writing up the contract, the unmarried couple will most likely have to take out a mortgage loan. Unfortunately, it is at the lender’s discretion if they want to give out a loan to an unmarried couple.

Both partners will have to apply individually for the mortgage loan, and some lenders will require both of them to qualify before they give out the loan. Married couples are regarded as a unit, and are satisfied with only one of the partners to qualify for the loan. Both unmarried home buyers are required to be on the loan, so one person’s credit history may jeopardize the whole process.

Another possibility is to apply for the mortgage loan in just one partner’s name. If one person’s credit history prevents the couple from taking out a loan, the other can apply for the mortgage solely in his or her name. This can prove to be very risky, because the one person who applies for the loan will have full responsibility. In case of an unforeseen event, such as a break up, that person will find themselves stuck with having to pay the mortgage alone, or risk going into foreclosure and take a large hit on their credit score.

Buying a home as an unmarried couple is possible, but you will most likely encounter more difficulties than you would if you were a married couple. The most important thing to remember is that you have to think ahead and protect yourself from any unpleasant situation, however improbable it may seem. If you decide to get a mortgage loan as a single person, because your partner can’t qualify, then keep in mind that there is always the possibility of ending up having to pay off your mortgage loan alone.

How Mortgage Points Play a Bigger Part in Loans

How Mortgage Points Play a Bigger Part in Loans-150x150Mortgage points are various costs or fees that are paid when taking out a mortgage loan. Their value is based on the size of the mortgage loan and they have an influence on what your interest rate will be. Mortgage points are essentially a form of interest that is paid before you start making payments on your mortgage loan. Acquiring a mortgage loan can be an expensive and complicated process, but an explanation of mortgage points may make things a little easier and save you money in the long run.

What are Mortgage Points?

There are two types of mortgage points: discount points and origination points. One point equals 1 percent of the total loan amount. For example, on a $200,000 loan, one point is $2000, which is 1 percent of the total amount borrowed.

Origination points are paid to lenders in order to compensate them for their role in processing and approving your mortgage loan. Your credit history plays an important part in the number of points that you will have to pay to your lender. You can negotiate how many origination points you will be required to pay, but origination points are not tax deductible.

The points that will have a bigger impact on how much you will spend on your mortgage loan are discount points. Equal to 1 percent of your mortgage loan amount, one discount point will reduce your interest rate by 0.25 percent. Usually, lenders allow you to purchase anywhere from 0 to 3 discount points. So discount points are a form of pre-paid interest, which can help you pay less on your loan over its lifetime.

Are Mortgage Points Worth Paying for?

When you consider purchasing discount points, you must take two factors into account. The first is how long you are planning on living in your new home. Because discount points reduce your loan’s interest rate, the more you live in your home and keep making payments, the more you will save. If you plan on moving after only a few years, then paying for fewer points or even none is generally a better choice.

The second factor that you should take into consideration when deciding whether to pay for discount points has to do with your ability to pay for them. Between the large down payment and closing costs, buying a home is a pretty large investment, and sometimes there simply isn’t enough money left to purchase mortgage points. Because points are based on a percentage of the total loan amount, buying a cheaper home means that points will be more affordable as well. But with more expensive homes, such as a $400,000 home, three discount points will cost you $12,000, which is not exactly cheap, especially when you have to pay several other fees and the down payment on the closing day.

Whether it’s worth paying for mortgage points or not depends on your future plans and budget. If you do your homework and calculate how much your mortgage will cost you with and without points, you will generally find that paying for points is a good investment that will save you a considerable amount of money.

You won’t see any huge savings on interest month to month after purchasing points, but, after a 30 year loan period, those savings will add up to tens of thousands of dollars. Of course, before choosing to pay for mortgage points, you should carefully analyze your finances while taking into account the two deciding factors.

How Alternative Mortgage Loan Repayment Plans Can Help You

How Alternative Mortgage Loan Repayment Plans Can Help You-150x150For a home owner, the largest monthly bill is probably the mortgage bill. Paying off your mortgage will make this large bill go away, which will change your financial situation significantly. You will be able to spend more on other things, save more, travel, or even quit your job and pursue another career.

Alternative mortgage repayment plans can help you shorten your 30-year mortgage loan and get rid of that monthly payment in only 22 to 24 years, but they are not for everyone. The most commonly used mortgage loan repayment plan is the bi-weekly repayment plans.

The Bi-Weekly Mortgage Repayment Plans

This type of mortgage repayment plan takes advantage of the fact that most people are paid by their employee every two weeks, instead of twice a month. So, with this repayment plan, you are required to make a mortgage payment every other week. Because there are 52 weeks in a year, you will make 26 payments per year. If you compare the number of payments that you will make on a bi-weekly plan to the number of payments that you make on a bi-monthly plan, you will find out that you make 2 extra payments, which will reduce your loan repayment term significantly.

Because bi-monthly plans require you to make 24 payments per year, while bi-weekly plans require you to make 26, those extra 2 payments translate into one extra monthly payment per year. Not only will this help you pay off your mortgage loan quicker, but will also help you build home equity faster and pay less in interest rate.

Paying your mortgage bi-weekly is also advantageous because the payments will coincide with your paycheck schedule, but this type of repayment plan normally comes with some pretty expensive costs in fees and various charges. The money that you will be spending on fees could be spent to pay off your mortgage through a regular repayment plan. Another disadvantage is that the bi-weekly repayment plan is inflexible, meaning that, if your pay schedule changes to once or twice per month, this might interfere with your ability to make your mortgage payments on time.

Is the Bi-Weekly Plan a Good Choice?

The bi-weekly mortgage repayment plan is a great choice for those who don’t have the time, patience or discipline to manage their finances. The lender will provide a repayment plan that will coincide with your bi-weekly paycheck, which will make things more convenient for you.

But you should carefully look at the disadvantages, as well. The money spent on fees could be better spent somewhere else. Also make sure you know what your future plans are. If you plan on moving soon, then the extra payment you will make each year is simply not worth it. Make sure that paying off your mortgage doesn’t interfere with other future plans, like sending your children to college, pursuing a different career, or going into early retirement.

Alternatives to Bi-Weekly Repayment Plans

Not every lender offers bi-weekly mortgage repayment plans, but you can take advantage of most of the same benefits that these plans offer for free.

  • Try to simply ask your lender if they can allow you to pay half your monthly mortgage payment every two weeks. Some lenders will allow you to do that, others will charge you for this, while others will refuse.
  • Pay an extra one-twelfth of your mortgage payment every month. This amount should go towards your principal.
  • If you receive your paycheck every two weeks, start a savings account and deposit half of your mortgage payment in it every other week.

Alternative mortgage loan repayment plans are very convenient and a good way to pay off your mortgage loan earlier, but make sure that they suit your budget and future plans. With a little discipline and research, you can benefit from most of the advantages that these plans offer without having to spend more money.