Advicemortgages

Job loss is a grim specter for a mortgage holder. For most of us, that mortgage payment is at the top of the monthly bill payment list. You can talk almost any creditor into short term relief and even long term restructuring the phone company, your car loan(s), credit card companies; they deal with delinquent payment plans daily. Mortgage companies get nervous much more quickly, but most are willing to consider at least one skipped payment if your unemployment is for a short period.

Mortgage Insurance?

You may not remember this in the flurry of documents and signing sessions that accompanied your home purchase, but you may well have an insurance policy that protects your lender against mortgage default. If you have a loan that is more than 80% of the homes value when purchased, you probably are also paying for mortgage insurance. Its incorporated into that list of particulars you pay on every month: principal, interest, taxes, homeowners insurance and mortgage insurance. Its meant to protect the lender; see what protection it provides for you.

Talk to your Lender

It is important to talk to your mortgage lender. Job upheaval is sufficiently commonplace in this country that many mortgage holders have become flexible about restructuring loans, as long as you are prompt in informing them and honest about your job prospects.
A typical restructuring will allow for lesser payments until your income is reestablished, at which point the bank will again restructure to get you back on schedule. Keep in mind that prospective new employers are almost as likely to check your credit rating as prospective lenders.

Before you enter into discussions with your lender on this prospect, decide what you can afford. Dont be grateful for whatever is offered, and agree to a financing plan that you cant meet. Tell your lender that your maximum temporary mortgage payment has to be 60% of the norm, not the 75% they are proposing. If you lose the house, it costs them money too.

Bankruptcy The Poison Pill

The long term answer to keeping your home while unemployed is filing for bankruptcy. The unattractive fallout from exercising this option is known to most of us, although the hard and fast rules have changed somewhat. What used to be seven years of no credit at all has become credit card eligibility after two years. Depending on the circumstances of your bankruptcy, you may be eligible for high risk auto loans and other debt within two to three years after bankruptcy. That assumes, of course, that you have regained employment status and are once again making mortgage payments. Also, bankruptcy has become so common that the Federal Government is on the verge of making it a much less attractive option for consumers.

Near Term Borrowing

With near-term unemployment and an unclear future, many people have put mortgage payments on their credit cards until the limits on those cards are reached. It may blow holes in your credit rating, but it will keep you current on the mortgage and stave off bankruptcy. You can attempt to obtain a home equity loan to fill the hole in your monthly budget, but those are much harder to come by when youre unemployed. If there are others in the household who are employed, the home equity loan may be a viable option.

A mortgage is generally one of the biggest debts that a person faces in life, and a large part of that expense is due to the interest that is added on as time goes by. Most homeowners would gladly reduce that debt if the opportunity presented itself, though they do not realize that the key to reducing their mortgage debt lies in reducing the amount of interest that they pay on their mortgage. By paying off their mortgage months or even years in advance, all of the interest that they would have had to pay during that time obviously will not have to be paid. Also, the interest that will be paid will be at a reduced rate because they are reducing the total amount that the interest is applied to at a much faster rate.

The trick, of course, comes in figuring out a way to pay off the mortgage early. For individuals who live on a tight budget as it is, the thought of paying even more toward their mortgage may seem almost laughable. There are a number of ways that homeowners can pay down their overall mortgage in order to pay it off early without having to cause a strain on their finances, as well as services which can assist them in doing so if they aren’t able to accomplish it on their own. Here are just a few examples of how a mortgage can be paid off early without causing undue financial strain.

Setting Aside Partial Payments

One easy way to pay off your mortgage early and possibly even make your finances easier to handle is to simply put aside a portion of your mortgage payment from each paycheck (or even from every other paycheck, if you get paid weekly.) If you put aside approximately half of your mortgage payment every other week, you’ll end up saving the equivalent of an extra payment every year. Setting aside slightly more than half will cause an even greater savings, causing you to pay down your mortgage at an even faster rate. Depending upon the length of your mortgage term and when you start this savings plan, you can cut months or even years off of your mortgage. All that you have to do is pay whatever you have put aside each time your mortgage comes due (which should cause you to end up with a few payments that are significantly more than the minimum payment.)

Additional Payments at Tax Season

If you don’t like the idea of having to keep track of savings over the course of the year, you might use income tax returns to help you to make up the difference. For many people, the amount that they receive in their tax returns is significantly more than their mortgage payment. While you may have at least some of your tax money earmarked for specific purchases or to pay off other debts, using part of that money to make the equivalent of an extra mortgage payment once per year can significantly reduce how much you owe. If you can afford to contribute more than just the amount of one payment or if you use this in conjunction with the savings plan mentioned above you can pay off your mortgage even faster.

Using Interest to Fight Interest

If you have a high-interest savings account, you can use that interest to help you pay off your mortgage ahead of time. Once or twice per year, pull out money from your savings that’s equivalent to part of the interest that you’ve accrued and add it in with your mortgage payment. Provided that you have a high enough savings balance you should be able to make a significant impact on your mortgage debt by doing this. Over the course of the year the amount that you add to your mortgage payments could potentially equal an entire extra payment or more.

Bi-Weekly Mortgage Services

Should you worry that you can’t keep yourself motivated to keep making these extra payments, you might consider using a bi-weekly mortgage service. These services automatically withdraw one half of your mortgage payment from your checking account every two weeks, and then make your payment for you when it comes due. The system works similar to the paycheck savings plan mentioned above, but since you have an outside company doing the work for you all that you have to do is make sure that you have the money in your account to cover the withdrawals. Though the services do charge fees to cover their costs, the amount that you save in interest payments will be significantly more than what you pay to the service.

Normally, banks and financial consultant will advice you to pay extra money into your mortgage. With this method, it will help you cut down the huge interest amount and reduce the period over which you pay back the loan.

For example, if you borrow 200 000 over 30 years at a rate of 5%, your monthly repayments would be around 1074. Over 30 years, you would actually pay 1074 x 360 (months), which is 386 640. That’s 186 640 in interest! What you have to do is to find an extra 246 a month, and pay 1320 a month into the mortgage, you’d cut 10 years off the repayment period – the loan would be fully paid in only 20 years. Moreover, your total payments would be 316 664, saving 69 756!

The flaw in this technique is that it ignores the time value of money. Everyone knows that money is worth less now than it was when they were younger. If you take that 1074 mortgage repayment, for instance, in 30 years time, when the last payment is due, it would only be worth 437 in today’s money.

A pound now is always better than a pound in a year’s time, or in 10 year’s time. You cannot simply subtract the mortgage interest amount for a 20 year mortgage from the interest on a 30 year mortgage. What you need to do is calculate the Present Value of each mortgage.

First method of repayment:
The Present Value of a 30 year mortgage with repayments of 1074 at a 5% interest rate is 200 066.

Second method of repayment:
The Present Value of a 20 year mortgage with repayments of 1320 at a 5% interest rate is 200 066.

The two repayment schemes are exactly equal. The 69 756 ’saving’ in the interest rate is really just the effect of adding the extra 246 a month into the repayments – in fact, that 246 a month adds up to 59 040 over 20 years.

Lets think this way. What if you took that 246 a month and invested it in, for example, mutual funds? If you could get a return of 10% p.a., after 20 years you would have 186 804. With inflation at 3%, that would be worth 102 597 in today’s money.

Why would the banks recommend that you pay off your mortgage quickly? Surely the longer the income stream lasts, the better? The banks love being able to prove that their recommendations will ’save you money’. But in reality, the banks do understand the time value of money. They know the true value of that extra 246 a month that you’re giving them now, not in the future. And the shorter the time you take to repay the mortgage, the lower their risk, and the sooner their money comes back to them to be loaned out again.

There are some arguments for paying your mortgage back quickly – for one thing, the quicker you pay, the quicker your equity grows. But you should understand that every pound you give the bank now is a pound that you can’t invest. You then miss opportunity to invest and a return 10 percent or even 15 percent!

Home Equity Loans The Best 2nd Mortgage for Financing Home Improvements

Tired of looking at those avocado green kitchen appliances? The wood paneling and shag in your family room? The worn fiberglass tub enclosure in the guest bath? Home improvement is sweeping the country. Approximately half of fixer-uppers are do-it-yourself, while the other half is contractor driven.

So how do you decide when to move or stay around, when a home remodel is a good idea or not?

The American Homeowner Foundation estimates the total cost of moving to be at least 10 percent of your home’s current value. In other words, if you can make things right with your home for less than 10 percent of what you could sell it for, it makes sense to stay put and fix it up.

Theres a couple of ways for you to start the transformation of your home. If you have enough equity built up for the total cost of the project, a traditional home equity loan might work for you. Benefits of home equity loans often include a better interest rate. You might even lower your mortgage payment while increasing the value of your home.

For the do-it-yourselfer working toward several small projects, a home equity line of credit allows flexibility. The lender basically sets up a line of credit based upon the equity in your home. The, issues you checks or a credit card to draw from the account as you need the cash.

Simply make sure refinancing your home makes financial sense says Lori Vella a senior banking executive. “Improving your home is almost always a smart investment, especially in this rate environment. Just make sure you’ll be in the home long enough to recoup the cost of refinancing,” says Vella.

A 2004 survey by Remodeling Magazine compares construction costs to likely return on investment (ROI) at resale. RM sent surveys to 20,000 appraisers, sales agents, and brokers. Those industry insiders generating 356 responses (a 1.78% response rate).

The RM survey shows minor kitchen remodels do the best, returning 92.9 percent of your investment, followed closely by new siding at 92.8 percent. The survey also lists bathrooms, attic bedrooms, deck additions and family or sun room add-ons as lucrative investments. Most of those remodels returned 80% to 90% for the home owners.

A home remodel is one of the best ways to improve the value of your home. Financially speaking, a home-equity loan could allow you to lower your mortgage payment, lower your interest rate, and when the remodel is said and done add thousands of pounds to your net worth.

Dont forget to check with your local utility company if you want to improve the energy efficiency of your home. Most offer an energy efficient mortgage program.

If purchasing a fixer-upper is what you looking to do. HUD has a 203(k) program designed to finance both the purchase of the home and the remodel costs in one easy mortgage. Most mortgage lenders offer access to the HUD 203(k) program.

Cash Saving Mortgage Tips And The Mortgage Crunching Secret Weapon Banks Don’t Want You To Know

Buying a house is a great long term investment. If you’ve never had a mortgage payment it simply means you’ll have to be more careful regarding the management of your finances. The first step before venturing into a mortgage if youre not already in one is to consider your financial situation. Then decide to buy a home where the mortgage and down payments are according to your financial situation so that you can enjoy life and have a roof over your head at the same time. If you have no idea what your monthly budget can afford then you should take some advice from a finance professional first.

Regardless of your situation here are several ways to reduce your monthly mortgage payments:

As interest rates keep on changing you should keep track of changes and consider refinancing at the right time. This would reduce your expenditures. Do the calculations to know your savings after paying costs and other expenditures.

Find out which bank offers the lowest homeowner insurance rates. You might be able to reduce either your insurance or tax payments.

Check your calculations properly and regularly to make sure that all adjustments are made correctly, even though it’s a bank sometime they make mistakes.

Choose a mortgage that offers flexibility. You want a mortgage that allows you to pay in an easy way according to your earnings.

Consider biweekly payments or accelerated equity plans. This will give you an additional payment each year and begins to reduce your mortgage quickly right from the start.

Try short term loans or variable interest.

Consolidate all your loans into a single one with lower payments. Make a table and analyze all your loans; education, car, home and bank loans for example. Study your expenditures. Try to consult a mortgage specialist, ask him about consolidations and how much it can reduce your monthly payments.

And last but not least, the mortgage crunching secret weapon:

Change a short term mortgage into a long term mortgage – go for a 30 mortgage. This will allow you to pay lower monthly payments which will lower the amount of interest you pay. Now, check with your bank for their rules and regulations but the next step is to pay way more each payment than the minimum payment. Each time you do this you’ll be smacking down the cash on the principle of your mortgage. This is the big mortgage early payout secret and it’s been known in many cases to eat a mortgage really easily in under 10 years.

A mortgage or home loan is a long term debt but it doesn’t have to be a burden. You are advised to pay it off as soon as possible but arrange your budgets tactfully by keeping an eye on insurance, loan disbursements and their interest rates. Enjoy your new home; hopefully with a few of these tips it will be all yours sooner than the banks desire. If it’s paid for it’s yours, if it’s a loan or mortgage it’s still theirs in my opinion.