Archive for October, 2007
Homeowners With An FHA Mortgage: Streamline It -Save Money
There is a fast and easy way to lower the payments on your existing FHA mortgage. It will not take money out of your pocket for closing costs. There is no appraisal required. As long as you’ve made your existing FHA mortgage payments there is no credit qualifying. You don’t even have to be working and making an income to get it.
An FHA Streamline loan option is already built into your existing mortgage. One feature it offers is that you can get a new lower rate loan, if it is available, without reappraising your property. You just need to take the step to contact an approved FHA lender to get the details and see what it could mean to you in monthly payment savings. You will have a new mortgage process to go through, but it is abbreviated since there is no appraisal involved. On the mortgage application the sections that relate to income, assets and debts do not need to be completed. The full process should easily be wrapped up in less than 30 days.
You will not get cash back from this loan. This program is designed strictly to lower payments. This is a benefit that is given to the mortgage payer to make it easier to continue mortgage payments as time goes on. The amount of the new loan will be the lesser of either the original loan amount or the existing debt. The original loan amount is the amount of the loan at the time you took out the present FHA mortgage. Existing debt can include the current loan amount, closing costs, reasonable discount points and prepaid expenses necessary to close a new loan. The upfront mortgage insurance on the loan to be paid off is subtracted out of these calculations. These two options are only available to you if you occupy the home as your residence.
If you have an FHA loan on an investment property, even if you originally lived in it, you will only be eligible to refinance the current mortgage balance. All closing costs and pre-paids will be paid out of pocket at escrow. You will not be able to add these costs to your new loan.
An appraisal could be done in processing the loan. If the formulas above do not pencil out, you may need to establish a higher current value to avoid out of pocket expenses at escrow. This gives flexibility provided the property has appreciated. The credit qualifying portion is still waived.
With the increase in mortgage rates over the last year, some people who have existing FHA ARM mortgages may be concerned that their annual rate adjustments could be climbing. You can use the FHA Streamline program to switch to a fixed rate FHA mortgage as long as the new rate is no more than two percent more than the current rate on your loan. If you feel that for your circumstances it would be better to go from a fixed rate to an ARM the new rate needs to be two percent less than the rate on the current loan.
So many people over the years have become homeowners by getting an FHA loan. At the time of purchase of a house an FHA loan gave all the features that made it an attractive alternative to other loans. Expanded qualifying, competitive rate and low out of pocket expenses turned renters into buyers. Now as time has passed, if you have a high rate that needs to be refinanced, FHA may again be the way to go to save money as the best option.
PMI - Private Mortgage Insurance
Lenders generally require you to purchase PMI - Private Mortgage Insurance , if you can’t come up with at a least 20% down payment. PMI is a rather expensive insurance policy that insures the lender against default if you walk away from your home.
Not everyone has to pay this insurance. There are federal and state plans for low income earners to help them buy a home with little or no down payment and without mortgage insurance, If you think you qualify, contact the FHA. Local bank and mortgages brokers can also hook you up with these programs.
Also lenders have come up with schemes to help homeowners avoid paying PMI. These are generally known as 20-80 or 10-10-80 loans or some variation thereof.
Basically the lender arranges for 100% financing through multiple mortgages, using whatever down payment you have. These only make sense if the costs of the loans are less than the cost of the mortgage and PMI combined.
In this article we will only consider borrowers who don’t have the 20% and don’t want to or can’t qualify for 100% financing.
The main purpose of PMI is to allow you to buy a home without having to wait years to save up the down payment. Lenders are more comfortable if you put down 20% or more since you are less likely to walk away from the house if problems arise.
Private mortgage insurance covers the down payment if you default and makes lenders much more eager to grant a mortgage.
Also you can buy a larger house if you use PMI because your down payment can be as low as 5%.
However PMI costs at least $40 a month on a $100,000 loan with 10% down. This is $480 a year until your equity is at least 20% of the value of the house.
The borrower almost always pays for this insurance which can be billed:
Annually. You pay the first-year premium at closing; an annual renewal premium is collected monthly as part of the total monthly house payment.
Monthly. The cost is slightly more than with the annual plan, but dramatically lowers mortgage insurance closing costs.
You pay your private mortgage insurance preminum monthly as part of your total mortgage payment, but you only need to pay one month’s mortgage insurance premium at closing, rather than one year’s.
Single. You pay a one-time single premium. Since single premiums are typically financed as part of the mortgage loan amount, no out-of-pocket cash is used for mortgage insurance at closing.
However, since you are financing the insurance, you are also paying points and interest on the premium, which increases its total cost.
Also make sure the single premium only covers you until you build up sufficient equity in your home. Otherwise make sure excess premiums are refundable.
In 1998, Congress passed the Homeowners Protection Act which went into effect the next year.
This law establishes rules for automatic termination and borrower cancellation of PMI on home mortgages.
These protections apply to mortgages signed on or after July 29, 1999 for the purchase, construction, or refinance of a single-family home.
The law does not apply to government-insured FHA or VA loans or to loans with lender-paid PMI.
For mortgages signed on or after July 29, 1999, your Private Mortgage Insurance must be terminated automatically when you reach 22% equity in your home based on the original property value, if your mortgage payments are current.
PMI also can be canceled at your request when you reach 20 percent equity in your home based on the original property value, if your mortgage payments are current.
Exceptions are if your loan is considered high-risk: if you have not been current on your payments within the year prior to the time for termination or cancellation: or if you have other liens on your property.
For these loans, your PMI will probably continue.
Ask your bank for more information about these exceptions.
If you signed your mortgage before July 29, 1999, you can ask to have the PMI canceled once you exceed 20 percent equity in your home, but federal law does not require your lender to comply.
The law also requires that:
New borrowers covered by the law must be told - at closing and once a year - about PMI termination and cancellation.
Mortgage service agents must provide a telephone number for all borrowers to call for information about termination and cancellation of PMI.
Even though the law’s termination and cancellation rights do not cover loans that were signed before July 29, 1999, or loans with lender-paid PMI signed on any date, lenders or mortgage service agents must tell borrowers about any termination or cancellation rights they may otherwise have - rights established by contract or state law.
Some states have laws that apply to early termination or cancellation of PMI - even if you signed your mortgage before July 29, 1999. Call your state consumer protection agency for more information about your state’s laws.
Fannie Mae and Freddie Mac, which buy home mortgages from lenders, also may have guidelines affecting termination or cancellation of PMI on home mortgages signed before July 29, 1999.
Check with your lender or mortgage service agent or call Fannie Mae or Freddie Mac for more information.
It pays to keep track of the equity in your home when paying PMI and asking for its cancellation once you have reached 20%.
Refinance Your Mortgage - A Good Idea To Save
Do you know that refinancing your mortgage can save a considerable amount of money on your mortgage rates? Refinancing your mortgage helps you to enjoy the benefit of lower interest rates and reduce your monthly mortgage repayment amount. If you are planning to refinance your mortgage then you need to consider several things to pick up the best deal available in the financial market.
Before selecting someone to refinance your mortgage you need to check the details of your present mortgage. That is how many years are remaining for your loan period and which type of interest rate you are currently paying for your mortgage.
These days there are several money lenders who offer mortgage refinancing services. But you need to be very careful while selecting a mortgage lender. Before selecting any money lender you need to talk with various lenders and know the various refinancing schemes they offer. This helps you to get a clear idea of how much monthly repayment amount you need to pay after you refinance your mortgage. Check whether the mortgage lender has calculated your monthly repayment amount from the principal left on your mortgage. Remember to compare your present interest rate and the previous interest rate and make sure that your new interest rate is lower than the original one.
Some people refinance their mortgage to get some additional money for home improvement or other expenses while some others refinance their mortgage to save money on their present mortgage. Whatever the reason for your refinancing plan let your money lender know that. Most mortgage lenders offer refinancing for 10 to 40 years. It is better from your part to suggest to your mortgage lender a refinancing period after calculating the monthly repayment amount. Similar to other loans, you can select fixed rate mortgages and adjustable rate mortgages. Most people tend to use fixed rate interests for their mortgages. The main advantage of using fixed rate interest rates is that it is less risky compared to the adjustable rate mortgages. This is because the interest rate of adjustable rate mortgages always tends to change – that is you cannot predict how much interest you need to pay in the next month.
Nowadays there are many mortgage lenders who offer their services through internet. This is an easy way to find a perfect mortgage lender. Online refinancing helps you to find a mortgage lender with the convenience of your home or office. Just do a search in the internet search engines to find a perfect money lender who can offer you services which best suit your needs.
Reverse Mortgages - Get The Money You Need - Part 1 of 4
Reverse Mortgages are loans that allow you to borrow back the equity in your home. Just as you once paid the bank, the bank now pays you. Isn’t that a nice change ?
If you are 62 years of age or older, they are a way to borrow against the equity in your home (the value of your home minus any mortgage debt you now have) to provide you with tax-free income. Seniors struggling because of falling retirement account balances and increases in the cost of medical care are looking for new sources of cash to maintain their standard of living.
The amount you can borrow depends on your age, the value of your home and interest rates.
Fortunately, you continue to own and live in the home for the life of the loan. There are no loan payments until you sell the house, die or move out for a period of a year or longer.
You can get the money as a line of credit, a monthly payment, a lump sum, or a combination of all of these. A monthly payment is a guaranteed of income for as long as you live in your residence, whereas; a lump sum could be used as you wish, such as to purchase an annuity that could provide you with a life long income. With a line of credit, you don’t have to pay interest on money you haven’t withdrawn and your money will earn interest while it’s waiting to be used by you.
A Reverse Mortgage might be worth considering if:
-You plan to stay in your home.
-You want to enhance your lifestyle and enjoy your golden years.
-You want funds for major expenses such as medical bills, or for major home repairs.
-You need additional income to live on and your only significant asset is your home.
-You want the peace-of-mind that comes from knowing your financial needs are taken care of.
-You own your home free and clear, or you have a small first mortgage.
-You don’t plan to leave your home to your heirs.
What are some of the potential advantages of Reverse Mortgages?
-It can help you maintain your financial independence or improve your quality of life.
-You can stay in your home and keep title to the property.
-The money you receive is tax-free and is not usually considered income.
-You make no payments until the loan ends or the house is sold.
-Your income is not a consideration in obtaining the loan since there are no payments until the loan ends.
-You cannot owe more than the value of the home at the end of the loan.
If you’re a senior, I hope you can see the benefits of taking advantage of this income source, if you need it.
This is a four part series, one each week right here, same location. In Part 2 next week, we’ll explore much more, including the drawbacks of a reverse mortgage and what types are available.
Discounted Rates For Mortgages: A Cheaper Option For You!.
“….3.99% fixed for two years and conditions apply….”. This is just one example of a mortgage on the market but there are hundreds if not thousand more such products available for would be house buyer. The conditions associated with this type of product are:-
That the interest rate; the discounted interest rate, reverts back to standard variable at the end of the two year period. For example, if 3.99% represents a discount of 2% from the standard mortgage package then the variable interest rate will be 5.99%. The variable rate at the end of the two year period may well be 6.7% depending on the interest rates at the time or if there is a downward trend in the property market, your interest rate two years on may well be below 3.99% at the rate of say 3.2%. Since market conditions are very difficult to predict in advance you; as a customer, may well find yourself at a disadvantage. The variable rate being either higher or lower than the 3.99% discounted initial rate has implications for your cashflow as well as living standard. Higher rate than 3.99% may cause you financial hardship and conversely a rate lower than 3.99% will increase your disposable income and thereby improve your living standard.
There are usually penalty clauses for an early exit. 3.99% being the discounted rate for you, if a situation arises that you have been offered a better deal elsewhere. Your option to exit from your current agreement with your existing lender are limited. Your existing lender will levy a fee if you were to get out of the agreement. In very limited cases, the new lender may cover that cost as well as other legal costs but he will also tie you into a similar contract.
Is the discounted mortgage a win-win option for both lender and customer?
The customer can:-
Plan his/her finances knowing that a fixed amount of money is going towards housing costs every month.
The discounted interest rate may well provide a better comparison to the renting option.
Discounted rates help customers expedite their purchasing decisions. In essence, it is an incentive to buy ones home.
Lender can:-
Compete for business by offering products and packages that are or appear to be more competitive than the competition.
Use discounted instruments to improve business during slow market conditions. A good example of slow market conditions would be post collapse of the housing boom of the late 80’s in the UK and elsewhere in Europe.
Finally, discounted mortgages are a good entry point for people with lower income levels even. I say this because buying a property is very risky anyway but lower rates reduce that risk somewhat even if it is for a short period of time. Reduced mortgage costs to the consumer provide a very good incentive and a boost to the housing market as well as increasing the demand for housing. Research findings for the period 1986 to 1988 show that demand for housing increased by 13% as a direct result of the discounted mortgage rates. In conclusion, discounted rates are therefore good for the consumer and good for the lenders.
Repayment Mortgage and its Elements.
Repayment mortgage is a more traditional mortgage for it is a very simple form of borrowing for residential home purchases. For its shear simplicity, it is also the oldest product on the market. A customer borrows money to buy their home… provided they fulfil the lending criteria.. money is advanced and the transaction is made.
The provided of the money actually secures his/her money for the most part against the property/home itself. The borrower for his/her part makes regular monthly payments over a pre-agreed time period. All being well, the borrower and the lender part company, hopefully amicably, at the end of the mortgage duration.
Mortgages used to run for 20 to 25 year period in the UK and elsewhere in Europe. However, since property prices have been rising upwards over the past 50 years, there are mortgage products available for 30 or so year periods. In Japan, it is not uncommon to find mortgage products on the market that run their course over a couple of generations; 50 to 100 year period.
Opting for a repayment mortgage appears to have advantages over other mortgages. One distinct advantage is that you are actually paying your capital as well as the interest right from day one. It is an advantage because you are not relying on some other mechanism to generate money to repay your mortgage. Consider the example of an endowment mortgage… where an investment is made into a fund.. which grows at the rate of the market… The rate of growth can vary between 5% to 20% depending on the market conditions. The difference in growth between 5% and 20% exposes the investor to some very serious risk. Using the repayment mortgage, you pre-empt any risk of shortfalls when you reach your agreed term time.
Senerio: How does the repayment mortgage actually work?
Total borrowing: $100,000
Term: 20 years
Initial interest rate: 5%
Each payment instalment contains an interest element and a capital repayment component. Therefore, first instalment @ 5% interest rate
= $416.67 + $300 (to repay the capital) = $716.67
12 months later, the monthly instalment will be =$401.67 + $ 300 = $701.67. The reason for reduction is interest element is as follows:-
1)The payment for the capital over 12 months period are $3,600.
2)This $3,600 (money paid) reduces the capital still outstanding to $96,400 from $100,000 the amount originally borrowed.
3)The reduction in interest payment to $401.67 from $416.67 per month is due to reduction in capital
The point being that the interest element will continue to reduce at a constant rate. In fact, towards the end of the mortgage term the bigger of the two elements namely the interest and the capital portion will be the capital element. The monthly outgoing will reduce in proportion to the reduction in the interest portion.
Finally, although the payment for the repayment mortgage started high. Admittedly, the initial payments are higher by comparison to say an interest only mortgage. Therefore, there are implications in cashflow terms and also standard of living for the borrower. This factor alone may appear to be a distinct disadvantage at the very start but the borrower is better off in the long run. Better off, because the monthly repayments reduce on a sliding scale to a much lower figure towards the end of the term. The other huge benefit for the borrower is that he/she does not have to make any lump sum payment at the end of the mortgage term. So, when you make your 240th payment the property is your to do as you please … it is totally unencumbered… free from any debt.. so no third party is holding any legal charge over it…