Mortgage Refinance

Posted on June 1, 2011 by Bill

Mortgage refinance basics are being track down today from big cities to small town. Yet many people even today have a question – what is a mortgage refinance? A mortgage refinance is a move to pay-off your mortgage by taking out a new loan on your home. So refinancing a mortgage is simply means replacing the old mortgage with a new one.

Should you or shouldn’t you take mortgage refinance?

Actually there is no simple yes or no answer for these question and in fact there may not be a simple or correct answer, as each person’s situation varies. It depends on your situation, priorities and preferences. However, you should refinance if you can save money by doing so. You can do it by two ways:

Lower interest cost: First, if you are refinancing to a loan with a lower interest rate than your current mortgage, then you may save on interest rate payment and therefore you will be able to make more payments towards the principal, increase your equity at a faster rate and pay your loan much earlier than you expected to do so. And this means more money in your pocket, or at least in the bank.

For example, if the current annual rate of interest of your mortgage is 8.25%, your monthly interest rate come around 0.6781%. If your current mortgage balance is $80,000, then you are expected to make an interest payment of around $542.48 monthly

You can save money on interest payment if you manage to refinance to a lower rate. If you manage to obtain a mortgage refinance loan with an interest rate of only 6%, then your monthly interest charge will become $394.52. This is a savings of around $147.96 every month on an interest payment. And this is the key to understand.

Lower future interest costs: Second, if you have a mortgage with an increasing variable rate of interest, then you can achieve savings on future interest rate payments through refinancing your mortgage with a fixed-rate loan program. You will be able to keep your mortgage interest rate and your interest cost at a constant level. This will strongly help you in planning your monthly household budget.

For example, you have a mortgage with interest rate 6.5% and a balance of $80,000, your monthly interest payments would be around $427.40. If your loan index rate (the rate on which your actual interest rate is based) increase by one point and becomes 7.5% the next year, then your monthly interest charges on the same balance would be $493.15. If the year after that, your interest rate increase by another point and become 8.5%, your monthly payments will become $558.90. So in three years your interest rate payments will amount to $17,753.42.

On the other hand, if you changed to a fixed rate interest now, you can save money on future interest payments. If you replace your 6% adjustable rate mortgage with a 7% fixed-rate mortgage refinance, you will actually make your current interest rate payments greater at $460.27 but this will lead to savings of around $32.88 next year and $90.63 the following year. In this fixed-rate loan, your interest payments in three years amount to only $16.569.86 – you have a savings of $1,183.56 in interest rate payments.

Current and future savings are not the only considerations when deciding to refinance, you should also consider your savings with the costs of refinancing. Compute the cost of a mortgage refinance and compare it with your projected savings. Refinance only if your savings will e greater than the costs.

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How to Consolidate Debt

Posted on May 29, 2011 by Bill

It is possible that you can get one big loan to consolidate debt and pay off all your little loans, at a lower interest rate than you’re paying now. Be very careful. When you’re in a hole, the first rule is to stop digging. But this is an option that you might explore, especially if you own a home with a fair amount of equity.

You could even consider selling your house to pay off your debts. This is not a time to be sentimental. You have to take a cold, hard look at your options and decide which one makes the most practical sense. There are lots of factors to consider here, such as the tax break for paying mortgage interest and whether you could rent a place for the next several years for the same amount you’re now paying on the mortgage.

If you have a lot of equity in your house, it makes sense to consider tapping into it. You’re sitting on a pile of cash you could use to consolidate debt that has built up and to get into a more stable financial situation. Don’t liquidate anything without being sure of the consequences. If you sell your house for a great deal more than you paid for it, you could have to pay a capital gains tax. Consult with an accountant or tax attorney before taking this step to pay your debts.

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8 Things You Can Do to Improve Your Mortgage

Posted on May 22, 2011 by Bill

How to be mortgage free within ten years

Most mortgages today are amortized over 25 years, below are the tips for people who want to be mortgage free as soon as possible. If the following suggestions are followed by the people, their mortgage’s payment can be reduced by number of years.

1) Use accelerated weekly, or bi-weekly payments. Both of these methods enable you to make 1 extra monthly payment a year – the effect of this alone reduces your amortization from 25 to less than 21 years.

2) Give your mortgage the same raise as you get each year. If your income goes up 10%, so should your mortgage payment. This extra increase in payment will go directly towards principal repayment.

3) Give your mortgage a portion of any bonus or extra income. If you spend 30% of your income on your mortgage, then 30% of extra income should also go to your mortgage in the form of a prepayment. This bonus portion will go straight towards principal repayment.

4) Keep your payments the same even if you renew at a lower rate. Since you know you can afford to pay at this level, don’t decrease your payment when you negotiate a lower rate. The difference in payments between your new rate and the old rate will go directly to the principal.

5) Use your income tax return to put a lump sum payment towards your mortgage. This is extra money that is not used in your monthly budget.

6) Use extra money from your budget. Most financially sound people have a budget that they live by, if you have a little bit extra then apply it to your mortgage. Prepayments can be as little as $100.

7) Round up your mortgage payments. Why not round off that $656 bi-weekly to $660, or $675?

8 ) Consider a variable rate mortgage. While the fluctuation will keep some people awake at

night, those who can endure the rate adjustments save money over time.

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A Briefing on The Mortgage World

Posted on May 17, 2011 by Bill

Mortgage Lenders

The types of mortgage lenders include mortgage bankers, commercial banks, credit unions, and thrift institutions.

Banks, savings & loans and credit unions collect funds from their customers through checking and savings account and certificates of deposits. Later they use these funds to make loans. When these institutions make a mortgage loan, they may decide to hold it in portfolio or sell it to secondary market investors.

Mortgage bankers get their funds typically by selling their loans in the secondary mortgage market. Although after funding the loan is sold shortly, mortgage bankers may not sell the servicing on the loan. Since mortgage bankers initially have one focus on business – to make mortgage loans -  they usually offer very attractive loan programs and rates.

Mortgage Brokers

Mortgage brokers generate about 50% of all loans. There are variety of lenders and often offer the most choice in loan programs. Brokers give assistance to the consumer in completing the application and loan selection process and direct them to suitable lenders to fund the mortgage. Besides, if your loan is turned down brokers can quickly place your loan with another lender. Mortgage brokers are paid by the borrower or the lender when a loan closes.

There are two main types of mortgage brokers today – those that represent the borrower and those that do not represent the borrower.

The important thing is to understand the difference between mortgage lenders and mortgage brokers. Mortgage brokers do not make a decision whether to extend you a loan, and they don’t actually make the loan. They work as middle man between borrowers and lending sources. However this fact does not mean that you have to pay a higher rate. Since mortgage brokers obtain their funds from a variety of sources, they can even save you money by shopping your loan.

Mortgage lenders usually have wholesale and retail departments. They are free to set their own pricing and may markup wholesale rates differently. It is important to choose when deciding on a mortgage broker one that shops rates with a large number of lenders, has a fair markup and good service.

Correspondent Lenders

Correspondent lenders, a relatively new group of mortgage loan provider, they have the ability to make a decision whether to extend you a loan and fund it with their own money. As soon as our loan is closed, it is usually sold to another lender, the funding lender. If a correspondent lender makes mortgage loans available from one source of funds, they may be functioning as the exclusive agent of the funding lender. Most of the correspondent lenders, like mortgage brokers, have several sources to choose from, so they can help you to find a loan at a lower rate.

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Ability to Qualify For a Mortgage

Posted on May 14, 2011 by Bill

Most of the people have asked a question on how lenders evaluate their ability to qualify for a mortgage. While there are many more questions that lenders assess. The article is going to focus on the important ratios and numbers that they examine most closely.

The two most important numbers for the lending decision are the Gross Debt Service Ratio (GDS), and the Total Debt Service Ratio (TDS). GDS is to measure the amount of  income that goes towards servicing of house related debt and TDS is to measure the amount of income that goes towards servicing of total debt.

For calculating this simple formula can be use:

monthly mortgage payment

+monthly property taxes

+heating

+50% of maintenance fee

Subtotal

(subtotal / gross monthly income) * 100 = GDS

The monthly mortgage payment is determined by the monthly principal and interest payment. This is determined by how much the amount borrowed, on what rate it is borrowed at, and for how long to amortize the mortgage amount over. Dividing the annual property taxes by 12 can arrive at the monthly property taxes. Heating is generally calculated at a minimum rate of $50 per month. The maintenance fee component is generally only applicable for selected town homes and condominiums.

The TDS ratio takes a look at what someone have in GDS ratio, but add the other monthly debt obligations. This ratio does not include things like phone bills, water and car insurance. Lenders are only able to use the information available to them on credit report. This information includes car loans, credit cards, lines of credit, departments store cards, and other loans.

While these two ratios make up the main ingredients of lending in Canada, by no means do they represent the whole picture. Job and income stability, credit rating, and type of job all play a major role. Some lenders will not lend to people with negative net worth, others include credit available in the debt servicing etc. From the big banks to the trust companies, they all have their individual characteristics.

If you are applying for a conventional loan, then the lenders have a lot more flexibility. If your relationship is valuable to the lenders then you can often go a lot higher on the ratios, or if there are other circumstances that warrant consideration. The mortgage market is getting increasingly competitive .

Even freshly landed immigrants can get a mortgage easily with a 20%, or higher, down payment. Getting a mortgage today has never been easier. Get good representation, and always demand the best.

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Financial Market Place

Posted on May 12, 2011 by Bill

In the financial market place, mortgage market is definitely a segment unto itself. If someone wants to know about the mortgage market, first of all he/she must understand how it interacts with the overall market funds, commonly referred to the capital market. The most common thing in the capital market is simply this: at any certain point in time, some parts of the economy have a huge surplus capital i.e. huge investors invest in the economy while in the other side the rest part of the economy have a use of that surplus capital i.e. borrowers borrow the money.

The Mortgage Market

Bank used to lend mortgage money from their customers deposit. In today’s market this does not happen anymore. The competition for deposits has now risen to the point where there is no longer a sufficient deposit base for bank and trust companies to lend from. Today much of the bank’s lending capital comes from their own ability to borrow from the debt capital market.

The primary responsibility of the debt capital suppliers is to make sure that they preserve the capital of their investors while getting a fair rate of interest for the money they lend based on what it is lent for.

Mortgage Pricing

When money is lend out to higher risk areas, the debt capital suppliers are able to command a risk premium i.e. extra return for enduring that risk. Commonly in the financial markets, government backed financial instrument serve as the risk-free investment. That is to say, governments have almost zero default risk through their ultimate ability to increase our taxes and control money supply.

In this case of mortgages, government backed financial instrument is the federal government bond. This bond represents a promise by the government to pay the interest stated and to repay the original capital at the stated maturity date. In order to encourage those who invest in debt capital to invest in mortgages instead of government bond there must be some kind of premium given as a reward for the extra risk associated with investing in mortgages.

So next time if you want to look for a mortgage rate movement, spend less time watching the Bank and more time watching the movements in the bond market. The bond market does trade on expectations, it is important to note that these expectations are typically the key driving force behind the mortgage rates we face. By keeping in touch of the day to day movement of these rates in the financial markets you can have much better success at considering which way mortgage rates will move next.

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Live in a billboard?

Posted on April 6, 2011 by Bill

What do you think about this… I’ll help pay your mortage if you turn your house into one giant billboard! Would you do it? Would you care if your neighbors turned their two story house into a painted advertisement?

That is the question and proposition that advertising company Adzookie is giving to “lucky” participants. Would you turn your neigborhood house into a giant billboard? let us know… and if you already have billboarded your home – let us know what the experience is like.
(Full Article read here)

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Six Looks At What One Million Dollars Will Buy You

Posted on March 22, 2011 by Bill

As housing prices dropped last year there were lots of people out hunting for bargin deals on houses. From one coast to the other – amazing properties where turning up on the market – Here is a look at what they found on the market and what One Million dollars will get you.

CNN Money brought us this look at what six One Million Dollar Homes looks like and the locations.

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10 facts that the IRS wants you to know about Mortgage Debt Forgiveness

Posted on March 18, 2011 by admin

10 facts that the IRS wants you to know about Mortgage Debt Forgiveness.

  1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
  2. The limit is $1 million for a married person filing a separate return.
  3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
  4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
  5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
  6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
  7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
  8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
  9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
  10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
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How Skilled are you at Balancing a Budget?

Posted on March 15, 2011 by Bill

“You can go into the spending side and start making cuts. Cut all financial aid? $103.9 million. Close five rural community colleges? $12 million. Mental health, drug/alcohol rehabilitation, and education programs? Cut. $32 million. Just another $850 million to go.

It’s not easy to cut popular social programs, as Governor Hickenlooper has learned by calling for deep cuts in education. If you want to go a different route, you could just soak the rich, by changing Colorado’s flat income tax to a graduated one. That could raise more than $1 billion and balance the budget in one fell swoop.”

Try it yourself: http://www.backseatbudgeter.com/

Brought to you by: MarketPlace

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