Mortgage Guide

The House Team Of Mortgage Intellingence asked:


If you look at the most stressful events in a person’s life, buying a home is on the top ten list. After all, it’s a big decision - both emotionally and financially. Many home buyers go through an anxious period after they’ve arranged for their mortgage and get ready to move into their new home. Knowing you’ll get a pocketful of cash would sure help, wouldn’t it?

That’s a big part of the attraction of cash-back mortgages. A plump cheque is a psychological boost to home buyers who have just made one of the biggest financial commitments of their lives. As mortgage brokers, we like to work with our clients to ensure that they look beyond the temporary “feel good” of the cash, and weigh their options wisely.

Remember that the cash-back option comes with a trade-off: if you choose not to take the cash back, you can get a lower interest rate. Over time, you could see substantial savings in interest payments.

So, start with the most important question: What will the cash be used for? Is this purchase a priority, and is it worth the difference in the rate? Perhaps you have a plan to take advantage of the cash-back to purchase the household appliances for your new home. The extra $3,000 for new kitchen or laundry appliances may be an urgent immediate need and a higher priority overall than the lower interest rate for your mortgage term.

But here is the second question to discuss with your mortgage broker: What will be the impact of the rate difference over time? You’ll need real-life figures to work out the details for your personal situation, but let’s look at an example*:

Let’s say that your cash-back option pays 1% of the mortgage amount on a two-year deal, 3% on five years, and 5% cash back on a ten-year closed mortgage. And let’s assume that you’re looking at borrowing $100,000 for a 5-year term, amortized over 25 years. Not long ago, you might be looking at the difference between cash back and a rate of 6.60%, or a discounted interest rate of 5.29%.

So what’s the bottom line? Your cash-back option would give you $3,000 up-front, but over your 5-year term, you would pay a little over $6,300 more in interest costs than you would have with the discounted rate. The exact cost of the cash-back option in this example is $3,330.44 - paid out over 5 years.

Is that a good deal? It depends. Did you get the much-needed appliances for your home… or use the funds to manage a high-priority expense? Then you probably got good value from the option. If - five years later - you can’t remember where the money went, then perhaps you didn’t make the best trade-off.



Chris

Joshua R. Conklin asked:


A Complete Guide to Internet Mortgage Leads.

The Internet has revolutionized the way consumer’s evaluate, compare and choose mortgage products and services. Every day more and more mortgage shoppers utilize the Internet to study and purchase home mortgages. As a mortgage broker you must recognize this industry shift and learn to utilize this tool. Each day thousands of mortgage seekers fill out forms on thousands of mortgage leads generation websites requesting more information on mortgage loans or quotes from mortgage lenders. These mortgage leads are made available to you by an array of internet mortgage leads generation brokers. The BIG question is, are these internet mortgage leads worth your effort and money? Will the return on investment be there? In this article we will discuss the in and outs, do and don’ts and questions you should ask when purchasing internet mortgage leads. Careful consideration must be given to purchasing internet mortgage leads. In this mortgage lead guide we will discuss:



What makes a quality Internet Mortgage Leads

What you should expect from an Internet Mortgage Leads

Closing the sell to your Internet Mortgage Leads

Questions to ask before purchasing Internet Mortgage Leads



Quality Internet Mortgage Leads

What makes a quality internet mortgage lead? A lead that CLOSES. Not necessarily. We all know that not all leads will close. In fact if I was able to close between 8% and 14% of the mortgage leads I purchase on the internet, I would be happy. I consider a mortgage lead to be a high quality lead if it meets the following criteria:



-The Lead is Fresh -

It is critical to find out how quickly mortgage lead brokers turns the lead around and delivers it to you. Best case scenario, the lead is delivered instantly (a real-time mortgage lead) and it is an exclusive mortgage lead (only delivered to you). At a minimum you want to make sure the lead is delivered in less than 48 hours. Otherwise, the lead is less valuable and should not be sold at the same premium as a real-time mortgage lead. The more time that passes from the time the user requested information, the less your chances of closing the sale to this lead. I’ve seen many cases where users deny even requesting information. The quicker you contact them, the less likely this is to happen. Hit while the iron is hot.



-The Lead is Accurate



One of the biggest challenges mortgage lead generation companies face is obtaining accurate data from users. No matter what type of technology a mortgage lead company claims to have, no company can completely stop users from entering inaccurate data. A recent example of technology to improve data accuracy is telephone number/location verification. Companies use software to make sure the area code in the phone number matches the state. This is a nice feature because chances are if a user is going to enter a bogus phone number they will not enter the correct area code. What you must do is evaluate mortgage lead generation companies and decide who has the best solution to fit your needs.

-The Lead is a True Lead



What do I mean by a true lead? I consider a true lead to be a lead that was actually generated by someone that is truly interested in obtaining a mortgage. You have to be careful that the lead is not an ‘Incentivized Lead’. For those of you that aren’t familiar with this new term I will explain. Many websites today offer users incentives to fill out forms. In exchange for filling out these forms users are given points towards the purchase of merchandise or even money. Make sure you stay away from companies that have anything to do with incentivized leads. These leads are worthless !!!

What you should expect from an Internet Mortgage Lead?

This is simple. Don’t set your expectations to high. Like I said earlier it would be great to close at a rate 8% - 14%. Remember that you are buying leads, not sales. Expect accurate data 80% of the time and try to close at least 8% of these leads and you should be doing very well for yourself.

Closing the sell to your Internet Mortgage Leads

Again, this is a simple concept. The quicker you contact the lead, the better the chance of closing the sale. The first thing you should do is make contact. Once you have made contact with the lead ask questions and find out what they are looking for. After this initial contact you can follow up with a quote and answers to their questions. Quick response, quick response, quick response !!!!

Questions to ask your Mortgage Lead Generation Company

These are the not so obvious but very important questions to ask.



What is your lead return policy?



It is vital that you find this out before purchasing Internet Mortgage Leads. Bad leads are worthless to you and at approximately $50 each, this can get expensive quick. No batch of leads will be completely accurate, but you want to make sure that the percentage that is bad is not greater than 10% - 15%. Tip:

Ask the company what makes a lead returnable. What makes the lead invalid? Different companies will have different policies on what constitutes a bad lead.

How many times are your leads sold?



When purchasing leads you must make sure those companies aren’t overselling the leads they generate. The best lead is an exclusive mortgage lead, meaning you are the only person the lead was sold to. Exclusive mortgage leads are more expensive but you are ensured that you should be the only person receiving the lead. If the lead isn’t exclusive find out how many other times the lead has been sold. The more mortgage brokers that receive the same lead the less chance you have of closing the sale.  



What filters are available for your leads?



Filters allow you to set criteria for the mortgage leads you receive. Example: You could specify that you only want leads for mortgage seekers that have a ‘Good’ credit rating or better or you could specify that you only want leads from ‘Colorado’.



How are the leads delivered?



Find out what format the leads are delivered. Leads may be delivered in text format, Microsoft Excel, email, etc. Make sure it is a format you are able to work with.



How do you generate your leads?

Find out what method the company uses to generate Internet Mortgage Leads. Make absolutely sure there is NO INCENTIVIZING.

-Mortgage Lead Guide-



Ashley

BC asked:


I own a home that is paid off but would like to take out a loan to fund some home improvements as well as help my parents pay off their home equity loan. Given this scenario can I take out a mortgage since mortgage rates are lower or am I limited to a home equity loan. I’m not interested in HELOC’s.

Clinton

bjm_116 asked:


if i buy a home of $350,000 detached / semidetached and 10,000 down payment then how much mortgage will i have to pay every month????

thanks for the answers well if not 10,000 then wat abt 20 or 25 ?

Adam

twister382836 asked:


My mom and sister are both named on the mortgage. Payments are still being made. My mom just passed and my sister does not have a job because she was caring for our ailing mother.

Brandon

The House Team Of Mortgage Intellingence asked:


Just imagine  as you’re going through your favourite coffee drive-thru this week  that a well-dressed gentleman stops and offers you $11,000 for your medium double double. Who would hesitate? We’d take the cash. It’s not so far-fetched. In fact, if you take that coffee budget and apply it to your monthly mortgage payment  a mere $30 extra per month -you could save yourself about $11,000 over the life of your mortgage.

Most of us can accept the idea that we must borrow money to purchase a home. We look for the best mortgage, and then just keep doling out the money for as long as it takes to pay it off. Most Canadians choose to amortize their mortgage over 25 years. That’s a long financial commitment, and it could more than double the cost of your home. But with good planning  and a few smart tactics  you should be able to enjoy your mortgage-burning party much earlier.

Here are a few strategies for fast-tracking your mortgage:

1. Increase your monthly payments. Rather than choosing your amortization period first, ask yourself how much you can afford each month. For example, you may feel that you can afford $1,000 per month. You’re delighted when your $125,000 mortgage only demands an $800/month payment (at a 6% interest). But make a monthly payment of $1,000 instead, and you’ll shave 8.75 years and almost $46,000 off your total interest cost.

2. Take advantage of lower rates. In addition to reducing the overall interest component of your mortgage, you can take the opportunity to pay down more principal faster  simply by maintaining your original payment. You should even increase your payment if you can, to reap the benefits of the cheapest mortgage money in memory. Again, you could take years  and thousands of dollarsoff your ontario mortgage.

3. Tie mortgage payments to your pay schedule. Many Canadians are paid on a bi-weekly schedule. If you accelerate your payments to bi-weekly instead of monthly, you could improve your own cash flow and fit in an extra payment each year. That means that you’re paying off principal faster  leaving you with less interest to pay overall. It doesn’t seem like much but  like putting your coffee budget to work  the bi-weekly strategy can have you mortgage free four years sooner, with almost $22,000 in savings.

4. Use any bonuses, tax refunds or “found money” to pay down principal. This is especially valuable in the early years of your mortgage. If you receive an annual bonus or other lump-sum compensation, see if you can put it against the principal. An extra $1,000 per year is a great way to fast-track to mortgage-free!

5. Consolidate your loans into a new mortgage and use the savings to boost your payments. If you’re a homeowner with some equity, you can use your mortgage to consolidate your other loans: student loans, car loans, etc. Add the money you’ve been spending on loan payments to your mortgage payments, and you could see big savings in overall interest.

With ontario mortgage rates at historic lows, you should take the opportunity to get an expert mortgage analysis from an independent mortgage broker with access to mortgages from a wide spectrum of lenders. You’ve got a great opportunity to put some fast-track tactics in place. You’ll remember what a good decision you made at your mortgage-burning party.



Jeffery

Tristan Hunt asked:


1% Mortgage Refinance loans, you’ve probably seen 100 different advertisements, but how is it possible? There is really only one big secret to 1% mortgages: 1% minimum payments are below the interest payable on the loan. Once we’ve addressed this feature, most of the other facets of 1% mortgages are relatively logical. 1% mortgages, which now come in dozens of varieties with start rates from below 1% (some even starting at 0% for a few months after refinance) up to 4% or more, offer astonishingly low payments. Some of them offer fixed rates for 30 or even 40 years, some of them are adjustable from the day you take them out, all of these are basically “1% mortgages” and are extremely popular amongst homeowners today. 1% mortgages and their offspring are being used for debt consolidation, cash flow management, investments, and for tax purposes, and they are being used a lot.

A full 40% of home loans originated in 2005 and 2006 are estimated to be from the 1% mortgage family, with multiple payment options. By its proponents, the success of the 1% mortgage has been hailed as a new era of affordability and flexibility, of an extremely sharp financial tool once available only to the very rich now available to every family in the country. Its opponents tend to think that the 1% mortgage is a bit too sharp for the average homeowner to handle, they fear “Average Joes” could conceivably cut themselves. Despite their division, one thing is certain, the popularity of the 1% mortgage is driven by the relentless pursuit of the American dream. There are more homeowners in the United States today than in any other period in history, and many of those who own homes have only been able to accomplish home ownership, which was once a lifelong achievement, in their early 20’s and 30’s, largely because of the extended availability of these 1% mortgages to normal borrowers.

How much less expensive is a 1% mortgage payment option versus the comparable 30 Year Fixed traditional principal and interest payment?

For a $500,000.00 Mortgage:

1% Minimum Payment: $1200.00

Normal Loan Payment: $3000.00

—————————–

Cash Flow / Savings: $1800.00

It’s easy to see why the 1% mortgage refinance is so heavily marketed as a way to cut your mortgage payment in half. In the above example, the 1% mortgage minimum payment option is 60% less than a typical, traditional principal & interest loan payment. 1% mortgage minimum payments are usually 50% lower than even the highly lauded Interest Only payment mortgages, and most loans in the 1% mortgage family include the ability to pay more than just 1% if need be.

So How Does it Work?

In fact, 1% mortgages are more than just the 1% start rate. They have a fully indexed rate as well, which is the true amount of interest due each month. When making a 1% mortgage minimum payment, the borrower is not paying all of the interest due, which is seen by some as a good thing and some as a bad thing. Let’s examine some of the commonly perceived benefits and caveats of 1% mortgages:

Commonly Perceived Benefits of the 1% Mortgage Family:

1. Extremely Low Monthly Minimum Payment: As we’ve seen in our example, the minimum payment option is less than half of the typical traditional mortgage payment.

2. Flexibility to Control Your Own Money: Unlike a traditional mortgage, which requires a payment to principal each month, 1% mortgages allow borrowers to take the power into their own hands to make principal payments when they want to, e.g after a bonus or a particularly good year.

3. Separate Cash Flow from Equity: While many personal finance pundits laud the benefits of building home equity, the reality is that investing home equity yields a 0% return on investment on a month to month basis. In the above example, paying the traditional principal and interest payment forces the borrower to invest $1800 more each month in their home, money which is locked up entirely in the equity of the home. Home Equity is illiquid, meaning all this money locked in equity cannot be accessed unless the home is sold or refinanced. The bank won’t cut a check each month for the borrower’s home equity in a traditional loan. With a 1% mortgage minimum payment, that $1800 difference in payments is money in the borrower’s pocket, to invest or spend at their discretion. By deferring interest using a 1% mortgage, the borrower has full access to money that normally would be locked up until they sold the property. That $1800 per month adds up to over $100,000.00 in cash over 5 years on a 1% mortgage, and it’s available every time your paycheck does not get used up paying a huge traditional mortgage payment each month.

4. Maximize Debt Consolidation: Using a 1% mortgage refinance to pay off all of your other creditors, such as credit card companies and high interest rate lenders, means that you can save even more money than with a 1% mortgage refinance alone. Since you aren’t throwing high interest money at your creditors each month, the cash which you save by making the 1% mortgage payment actually goes into your pocket, your savings, your investments, or wherever you need it most. That’s ultimate control. Let’s say that in our $500,000 1% mortgage example above, we rolled in $30,000 of credit card and other high interest debt that have a monthly minimum payment requirement of $1,000. By using a 1% mortgage refinance to pay off those debts, total monthly savings using the earlier example would be over $2800 per month, $1000 from the debt consolidation plus $1800 from the difference between the traditional loan payment at 6% and the 1% mortgage minimum payment.

5. Turn Equity into a Tax Deduction: First, the 1% mortgage payment is 100% interest and therefore should be 100% tax deductible in most cases. Secondly, One of the most attractive benefits of 1% mortgages is the additional tax deduction available on deferred interest. What this means is that borrowers can realize a tax deduction on interest they did not have to lay out the cash for, and choose the time at which this deduction is realized, which can be a huge savings upon liquidity or refinance. For real estate investors, this is a huge advantage as it can often wash out the capital gains consequences of selling a property. Disclaimer: We do not dispense tax advice, and you should consider consulting a CPA.

6. Easy Qualification: Normally, to qualify for low payment mortgages, borrowers are required to have exceptional credit. However, 1% mortgage refinance loans are routinely available to borrowers with credit scores as low as 620, and if they are borrowing less than 80% of the value of their home, scores can even be in the 500s provided there are no late mortgage payments reported on their credit file. The borrower’s income can be stated, and sometimes no income or employment documentation is required at all.

7. Enhanced Protection from Foreclosure: Because the minimum payment option is so low, the cash savings each month so high, and the loan is so flexible, the 1% mortgage family offers homeowners a low minimum payment option which they have a much higher likelihood of paying should they suffer an interruption of income or become disabled.

8. Biweekly Payments: A popular way to maximize the benefits of the 1% mortgage refinance is to elect to make biweekly payments (which are available on select 1% mortgages). This optimizes the loan to coincide with most borrower’s payment cycles and reduces any possible negative effects of deferring interest.

Commonly Perceived Caveats of the 1% Mortgage Family:

1. Artificially Low Payments: Because the minimum payments are so low compared to traditional mortgages, many pundits fear that people who would normally not qualify for home ownership can now own a home. The fear is that new or “low income” homeowners could “get in over their heads” by buying more house than they can truly afford. Ultimately, it is up to the borrower to decide how much they can afford.

2. Deferred Interest: Often referred to as negative amortization, this concern is commonly cited by journalists as a “negative” because the loan balance may increase over time if the minimum payment is always selected. However, this perspective does ignore the advantages of dramatically increased cash flow in the borrower’s pocket each month and the tax benefits of deferring interest. Of course, the borrower can choose for themselves whether they want to spend their money paying interest to the bank or if they would rather put the difference into their own pockets.

3. Depreciation: If the value of the borrower’s home falls dramatically, and other factors force the borrower to sell the home while the value is low, the borrower may wind up owing more than the home is worth. This is a valid risk over short periods of time for all types of mortgages, not just 1% mortgages. Even a traditional principal and interest mortgage does not pay off enough principal over the first 5 years of its life to offset a dramatic short term decline in home values. The risk of property values declining is a real risk of owning property, period. However, history tells us that residential real estate appreciates consistently over any given ten year period in the past 50 years.

4. Too Easy To Qualify: This may not seem to be a disadvantage to most borrowers looking to purchase or refinance a home, but there are those who believe that borrowers should be forced to document significantly more income and assets to qualify for these types of loans. A lot of this sentiment is an outgrowth of antiquated conceptions of 1% mortgages as a “Rich Man’s Mortgage”, which used to require significant net worth to obtain, and some of it is attributable to equally antiquated “one size fits all” notions about mortgages. Your perspective will likely depend on whether or not you are in a position to provide extensive documentation of your income and assets in support of your loan application.

Many of the criticisms of 1% mortgages revolve around the adjustable rate variety of these mortgages, which like all adjustable rate mortgages go up and down with the rest of the market. However, in most 1% mortgages, the minimum payment stays fixed and can go up or down only 7.5% per year. So if your payment in Year 1 is $1000.00 , in Year 2 it can go no higher than $1075.00. Because the rate on the loan can change more or less than the minimum payment, which is extremely low, the loan can result in the deferral of interest if only the minimum payment is made. Many of the amortization issues which are seen by critics of 1% Mortgages as their key detractor have been recently resolved by the introduction of fixed rate minimum payment loans to the 1% mortgage family.

Fixed rate 1% mortgage variations, the latest additions to the 1% mortgage family, have fixed interest rates from 3 to 30 years or more. The minimum payment option is generally available for the first 5, 10, 15 or in some cases 20 years of the mortgage, at which point the 1% mortgage payment recasts or readjusts to the interest only payment or the full principal & interest payment. During the fixed period, the loan payment and interest rates of fixed 1% mortgages are utterly predictable and can be defined down to the penny. Many borrowers who would prefer a fixed rate can benefit significantly from the 30 year fixed 1% mortgage, which actually carries a minimum payment of 1.95% and a fixed rates in the 6% to 7% range for 30 years.

While there are those in the journalism community who believe that 1% mortgages have too much power for your average homeowner, ultimately the decision is in the homeowner’s hands. Make a high payment to the bank each month, or put the money in their pockets. And homeowners seem evenly divided, as refinances into loans from the 1% mortgage category are projected to represent over 50% of all refinances in 2007. Traditional mortgages are not a one size fits all solution, and neither are 1% mortgages, but with low minimum payment options, excellent debt consolidation capabilities, significant cash flow and tax advantages made possible by deferring interest, and flexibility to control your finances or insulate yourself from interruptions in income or disability, 1% mortgages continue to post significant growth across the country. Whether or not a 1% mortgage refinance is right for you should be determined by performing a detailed analysis of your personal financial situation with a home loan professional who has extensive experience with 1% mortgage products. As always, we welcome your calls and emails.



Calvin

Pro Bargain Hunter asked:


Forget everything you thought you of the advantages of a variable-rate mortgage to take instead of closing in for the long term was aware.

A new study suggests the safety of one five-year Commercial mortgage Quote little or nothing beyond a more riskier variable-rate mortgage, provided that you have a jumbo-ranked discount rate gets.

“His interest costs on mortgages closed for close to five years, and often lower than that of variable-rate mortgages since late 1996,” the higher of Canada Mortgage and Ali Manouchehri economist of the Housing Corp.. Writing in the study.

The house owners have variable-rate mortgages enord in the past few years in the popular belief that you can save on interest costs by your mortgage rate to the first lenende rate of your lender to pens. Since the first increases, or as is generally in the past few years, cases happened, if your mortgage rate.

The prime rate by the major banks is now 4.5 per cent, while the posted rate of five years in the big banks is 6.15 per cent. In only one year, the variable-rate option saves you about $ 1,700 monthly payments to a $ 150,000 Commercial mortgage repaid over 25 years (a level prime rate assume).

Historically, you would also have spared. The CMHC study shows that the mortgages of five years from 1993 through 1998 will be taken anywhere from $ 50,000 to $ 5,000 in extra interest that would have cost about the term of the loan is paid (the example is based on a $ 100,000 mortgage repaid over 25 years).

The lack of this analysis is that it is not real-world Commercial mortgage price points. These days, very few people remove from a mortgage without a substantial discount from the posted rates at major banks.

For that reason, decided M. Manouchehri of CMHC mortgages for five years for variable-rate mortgages to compare. Incidentally, five-year term by far the most popular for fixed-rate mortgages around 59 per cent of the total.

The size of the rebates M. Manouchehri applied was based on the difference between posted major bank rates and the best contracts available from other donors.

For the five-year mortgages, he used a discount of 1.25 of a percentage point; for variable-rate mortgages was 0.4 of a point of first.

For mortgages of five years between 1993 and mid-1996 are taken, was the five-year mortgages more expensive in terms of interest. Since then, however, are variable-rate Commercial mortgage Rates have generally been a little bit expensive.

Clearly, there is nothing in this study that the fixed-rate compared with variable-rate debate once and for all decided.

In fact, the study CMHC only confuse everyone who recalls that at some research for Manu Life Financial back in 2000 by the finances of York University Professor Moshe Milevsky is made. His research found that the additional interest on a Commercial mortgage is loaded five-year average cost $ 20,000 between 1950 and 2000 for a $ 100,000 mortgage repaid over 15 years would have.

Some of the variable-rate towards five-year cross into question, go back to the CMHC study.

It shows that the Commercial mortgages for five years, or else, especially poor choices for a period of three years starting in mid-1993 were. The rates were high than for a tijdjerug, but they were later.

You were a spectator to these tariff reductions if you have a mortgage of five years was pasted, while people in variable-rate mortgages would have benefited almost immediately.

It is now a different world, nonetheless. The five-year mortgage rates are low, close to a 50-year, which suggests they will be much earlier to have their term: Take than to fall.

So what is here, variable-rate or five-year fixed rate the best choice? The people who are rock-bottom mortgage rates like as long as possible will probably still pay a variable-rate mortgage want. Remind me, you can type in a fixed-term Commercial mortgage Quote without penalty in most cases.

The case for the term of five years sees almost looks strong, nonetheless. First, the study tells us CMHC no significant costs to the conclusion within five years of your mortgage, and you even a little over a variable-rate mortgage could save.

Secondly, the likelihood of higher rates in the coming years suggest that this is a good time intends to close.

If you have a variable-rate Commercial mortgage lenders to 4 per cent is foreseen, would bloom by 0.85 of a percentage point should be given to the current tariff of five years to match. Not a lot of land within the wingspan of 12-18-month deal when the economy is doing well.

Challenged Baar, the variable-rate fixed-rate against any debate on the risks and rewards. At this moment, offers the option of five years is far less risk, and almost as much to pay.



Suzanne

vik william asked:


The best financial deals are found only after a thorough investigation into home loans and mortgages. Many people dream of owning their own home, but the high cost of homes generally requires a home mortgage to make it a reality. A mortgage is just like any other product; thus whether it is a home purchase, refinancing or a home equity loan, the price and terms of a mortgage can be negotiated. If you decide to apply for a home equity loan, you shouldn’t necessarily automatically go with the same bank that holds your first mortgage. Instead, shop around to find the best rates and loan terms. Finding the right loan is always a challenge; it requires checking different lenders and comparing options to select the home equity loan that best meets your needs!

There are different types of mortgages today to suit different classes of people. To make life easier for the old and the retired, the government has even introduced reverse mortgages. This type of mortgage is a loan against the home that does not have to be paid back as long as the owner is alive and living in the home, and at the same time provides income to the owner.

Until recently, bad credit was something of a mystery. However, after the establishment of the FICO score, a uniform credit scoring agency, measuring people’s credit behavior has become easier. Your future credit behavior can more easily be predicted based on this data. Most lenders use the FICO score as a starting point when deciding whether or not to extend credit to you. Moreover, if you don’t pay your monthly mortgage payments, the mortgage company can foreclose leading you to lose your home and affecting your creditworthiness in the future.

In a rapidly changing economic scenario it is often difficult to keep up with the complexities of the financial world. We at mortgageproguide.com have made every effort to elucidate and enunciate in simple terms, matters related to money and mortgage. Mortgageproguide.com is a comprehensive site offering free and unbiased information on home loans, conventional mortgages, bad credit mortgages, home equity loans and reverse mortgage. So go through to moneyproguide.com in detail and make an informed decision on all matters concerning money and mortgage.

Selecting a Mortgage

Selecting a mortgage is not only time consuming but confusing, given the large variety of loan packages on offer in the market today. With different mortgage rates, varied costs and fees and multiple terms and conditions, you need to be well informed to make the correct decision about which mortgage is best suited for you.

Among other things, mortgage rates are extremely important while selecting a mortgage. Interest rates fluctuate depending on different factors that influence the economy like prime rate, Treasury bill rates, federal fund rate, federal discount rate and certificate of deposit rate etc. If the economy is doing well and the demand for mortgages is high, the interest rates will also see a climb. On the other hand, if the demand for mortgages is low in a poor economy the interest rates will drop as well.

However, there are several other factors that are as or perhaps more important than interest rates that determine which mortgage is right for you. These primarily include your financial situation such as income, savings and liquidity, your housing needs and duration of stay, the level of risk you are willing to take as well as the term of your loan. All these factors need to be considered equally and balanced with one’s present position and future goals.

Before you decided on which mortgage is best for you, you will need a mortgage lender approval who based on your credit rating will offer you a loan that he feels is within your reasonable risk limits. The mortgage lender will take into consideration your ability to pay and then adjust your interest rates, points, terms etc accordingly. Only after this will you be able to select a mortgage that fits your requirements both, personally as well as financially. You can go in for mortgage refinancing at the end of the term if such a need arises.

BASIC FEATURES WHILE SELECTING:

1. Interest rate – fixed or variable:

In a fixed rate mortgage your interest rate will not change during the entire duration of your loan. This will enable you to know exactly what your periodic payout is and how much of the mortgage will be paid off at the end of the term.

• Federal Housing Administration Insured Loans (FHA)

• Veterans Administration Loans (VA)

• Farmers Home Administration Loans (FmHA)

With a variable rate, the interest will vary periodically during the life of the loan, depending on interest rates in financial markets.

2) Duration of mortgage: short term or long term

The duration of mortgage is the length of current mortgage agreement. A mortgage typically has duration of six months to ten years. Usually, if the term of the loan is short, the interest rates will tend to be low. A short term mortgage is for two years or less and is appropriate for people who feel that the interest rates will drop in the future, especially when it is time for renewal. A long term mortgage is for three years or more and most suited for people who believe that current rates are stable and reasonable and want the security of budgeting for the future. After the expiration of the term loan, you can either go for a renewal in mortgage at the current rates or repay the balance principal owing on the mortgage.

3) Open or closed mortgages

Open mortgages are typically short-term loans and can be paid off at any time without penalty. Homeowners who are planning to sell in the near future or require the flexibility to make large, lump-sum payments before maturity choose these kinds of mortgages. Closed mortgages are committed after taking into consideration specific terms. If you want to pay off the mortgage balance you will have to wait until the maturity date or pay a penalty.

4) Conventional or high ratio

A conventional mortgage is one that is not more than 75% of the appraised value of purchase price of the property. The balance amount is paid through your own resources and is known as down payment. If you have to borrow more than the stipulated 75%, then you will need a high ratio mortgage. If the down payment is less than 25%, the mortgage will have to be insured. The insurer will charge a fee which will depend on the amount you are borrowing and the percentage of your down payment. Fees range from 1% to 3.5% of the principal amount and can be paid up front or added to the principal amount of the mortgage.

REVERSE MORTGAGES:

Unlike a traditional mortgage where you make monthly payments to a lender, in a “reverse” mortgage, you receive money from the lender. It is a loan against your home or borrowings on home equity, which you do not have to pay back as long as you live there and yet, retain the title to your home. It must only be repaid once you die, sell your home or permanently move out of there. With a reverse mortgage the value of your home can be turned into cash which you can receive as a lump sum and up front, monthly cash advance, credit line which allows you to withdraw as and when you need it or a combination of all.

Reverse mortgages thus help homeowners who are privileged to own a house but are cash strapped stay in their homes and still meet their financial obligations. Reverse mortgage is for seniors. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older. The proceeds of a reverse mortgage are generally tax-free, and most have no income restrictions. They also do not affect Social Security or Medicare Benefits.

There are typically three types of reverse mortgages:

• Single purpose reverse mortgage– these are offered by some state and local government agencies and nonprofit organizations and have very low costs. To qualify, one should typically belong to a low or moderate-income group. They are not available everywhere and can only be used for a single purpose as specified by the lender like repairs, improvements, paying property taxes etc.

• Federally-insured reverse mortgages- which are also known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD) and

• Proprietary reverse mortgages- which are private loans that are backed by the companies that develop them.

In both, the HCEMs and proprietary reverse mortgages, the costs are relatively higher, widely available and can be used for any purpose. Additionally, the amount of money you can borrow with these mortgages depends on several factors, including your age, type of reverse mortgage you select, appraised value of your home, current interest rates, and the area where you live. In general, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

Just like a traditional mortgage, there are several fees and costs associated with reverse mortgages. These charges include an origination fee, up-front mortgage insurance premium (for the FHA Home Equity Conversion Mortgage or HECM), an appraisal fee, and certain other standard closing costs. In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage.

Origination fee

This fee covers a lender’s operating expenses, office overheads and marketing costs for making the reverse mortgage. Home Keeper borrowers are charged an origination fee that may not exceed 2 % of the value of the home.

Mortgage insurance premium

Under the HECM program, borrowers are charged a mortgage insurance premium (MIP), equal to 2% of the maximum claim amount or home value, whichever is less Additionally there is an annual premium thereafter equal to 0.5% of the loan balance. The MIP guarantees that if the company managing your account goes out of business, the government will intervene to ensure that you have continued access to your loan funds. Moreover the MIP guarantees that your debt will never exceed the value of your home at the time of repayment.

Appraisal fee

It is paid to the appraiser who is in charge of appraising your home and assigning it a current market value. Since Federal regulation mandate that the home be free of structural defects, an appraiser will also ensure as much. If the appraiser uncovers property defects, these will have to be repaired through an independent contractor whose costs can be financed in the loan.

Closing Costs

Include other miscellaneous charges such as credit report fees, flood certification fees, escrow or settlement fees, document preparation fees, recording and courier fees, title insurance, pest inspection and survey fees.

Service fee set-aside is an amount deducted from the remaining loan proceeds at closing to cover the projected costs of servicing your account.

The benefits of reverse mortgages are plenty. Reverse mortgage for seniors is a boon and allows the older generation to live with dignity and happiness.



Nicholas