Pros and Cons of 50 Year Mortgage Loans #homeloans


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Pros and Cons of 50 Year Mortgage Loans

50 year mortgage loans are not an option for all borrowers, but some lenders will allow the option. These lengthy loans are typically used on very large loans, such as jumbo loans over the nationally recommended loan size.

Pros of 50 Year Mortgage Loans

You will have very low monthly payments when you stretch your loan out over such a long period of time, even if the loan size is large. The main advantage of spreading a loan out is purchasing a house you can grow into in the future. If you have a small down payment. but you believe you will stay in a home for 30 or more years, you may want to buy a home you will not outgrow in that time frame.

Cons of 50 Year Mortgage Loans

The main disadvantage to such a large loan is the high cost of financing over time. Longer loans, though they have low monthly payments, typically have the highest interest rates of the many options on the table. While it makes sense to aim for a moderate down payment and hold onto some cash for investments and other purchases, aiming for at least 10% down and a loan maturity under 30 years will save you tens of thousands of dollars in the long run.

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Interest Only Home Loans: Pros – Cons #mortgage


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Interest Only Mortgages

Understanding Interest-Only Real Estate Financing Options

The borrower only pays the interest on the mortgage through monthly payments for a term that is fixed on an interest-only mortgage loan. The term is usually between 5 and 7 years. After the term is over, many refinance their homes, make a lump sum payment, or they begin paying off the principal of the loan. However, when paying the principal, payments significantly increase.

If the borrower decides to use the interest-only option each month during the interest-only period, the payment will not include payments toward the principal. The loan balance will actually remain unchanged unless the borrower pays extra.

Use our interest-only calculator to estimate your monthly payments.

Who Should Consider an Interest Only Loan?

The borrower may consider an interest only mortgage if they:

  • Desire to afford more home now.
  • Know that the home will need to be sold within a short time period.
  • Want the initial payment to be lower and they have the confidence that they can deal with a large payment increase in the future.
  • Are fairly certain they can get a significantly higher rate of return investing the moey elsewhere.

Advantages of Interest Only Loans

There are pros and cons with each different type of mortgage. The advantages of having an interest only mortgage loan are:

  • Monthly payments are low during the term.
  • The borrower can purchase a larger home later by qualifying for a larger loan amount.
  • Placing extra money into investments to build net worth.
  • During the interest-only period, the whole amount of the monthly payment qualifies as tax-deductible.

Disadvantages of Interest Only Loans

There are some drawbacks to interest-only mortgage plans. These disadvantages are:

  • Rising mortgage rates increases risk if it’s an ARM.
  • Many people spend extra money instead of investing it.
  • Many cannot afford principal payments when the time arrives and many are not disciplined enough to pay extra toward the principal .
  • Income may not grow as quickly as planned.
  • The home may not appreciate as fast as the borrower would like.

Other Risks Associated with Interest Only Loans

  • It is a risk when focusing only on the ability to make the interest only payments. The reason is because the borrower will eventually have to pay interest and principal every month. When this occurs, the payment could increase significantly, leading to what is called “payment shock.”
  • If the borrower has the payment-option ARM and they only make the minimum payments that do not include the amount of interest due, the unpaid interest is tacked onto the principal. The borrower can end up owning more than what was originally borrowed. If the loan balance grows to the limit of the contract, monthly payments will go up.
  • Borrowers may be able to avoid the “payment shock” that is associated with the end of interest only mortgages. However, it is difficult to predict what interest rates will be in ten years, so if the loan balance is higher than the value of the home, refinancing may not be possible.
  • Some mortgages, which includes interest only mortgages have penalties when a borrower prepays. If the loan is refinanced during the repayment penalty period, the borrower may end up owing additional fees. It is important to check with the lender to see if such a penalty may apply.
  • The home may not be worth as much as what is owed on the mortgage or it will depreciate quickly if housing prices fall. Even if the prices remain the same, if the borrower has negative amortization they will owe more on the mortgage than what they could get from selling the home. They may find it difficult to refinance and if deciding to sell, may owe the lender more than what would be received from a buyer.

Am I A Good Candidate for an Interest Only Loan?

Although many risks exist, interest only mortgage payments may be the right one for the borrower if the following apply:

  • The current income is rather modest and is certain that income will increase in the future.
  • The equity in the home is sizeable and the borrower will use the money to go toward other investments or principal payments.
  • Income is irregular and the borrower wants the flexibility of making interest only minimum payments during times in which income is low, and makes larger payments during periods in which income is higher.

Alternatives to Interest Only Loans

Compare fixed, adjustable interest-only mortgages side by side.

Not everyone can make an interest only loan work. It is important that the borrower do research to see if such a loan is right for their particular situation. If the borrower finds that the interest only mortgage is not right, then there are other options available. If the borrower is not sure that an interest only mortgage is right, there are other alternatives to consider:

  • The borrower should find out if they qualify for community housing that offers low interest rates or reduced fees for homebuyers making their first purchase. This makes owning a home more affordable.
  • It is important to shop around for features and terms that fit the budget, so it may be the right decision to consider a fixed-rate mortgage.
  • It is important to take time to save money for a bigger down payment, which reduces the amount that needs to be borrowed, which makes payments more affordable.
  • The borrower should look for a cheaper home. Once equity is built, the borrower can buy a bigger and more expensive home.

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What Is Mortgage Payment Protection Insurance – Pros – Cons #today #mortgage #rate


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What Is Mortgage Payment Protection Insurance Pros Cons

If you have a mortgage on your home, chances are you ve gotten plenty of offers for mortgage protection insurance. For example, shortly after I signed the papers for my new home, I started receiving mailers with information on mortgage protection insurance. It has now been more than a year, and I am still receiving these offers.

When you re inundated with these mailers, it s difficult to know what to take seriously and what to throw out as junk mail. Plus, why does anyone need mortgage protection insurance anyway? Answering these basic questions will help you the next time you see an offer in your mailbox.

What Is Mortgage Protection Insurance?

Generally speaking, mortgage protection insurance will cover some or all of your monthly mortgage bill in the event that you lose your job or become disabled, for various lengths of time. Most of these policies will also pay off your entire loan should you pass away. Policies can differ greatly from one agency to another, so you need to know what a given policy offers for the price.

Often, you ll have the option to purchase mortgage protection insurance from your lender. You don t always have to take them up on the offer, however, since you can also obtain mortgage protection through most insurance agencies and other independent sellers. Shop around because different agencies will have different coverage options and prices.

The cost of mortgage protection insurance varies from person to person, and as with life insurance. your rate is based on your age and health, as well as the current value of your home, the amount of your regular payment, and the current payoff amount of the mortgage. With policies that make monthly payments in the event of a disability, your cost will vary greatly based upon the industry in which you work. A roofer, for example, is at a higher risk of disability than an accountant.

If you purchase mortgage protection insurance that pays off your loan in the event of your death, your insurance company will send a check directly to your lender for the current payoff amount on your mortgage. In turn, your heirs won t have to deal with a home that has a mortgage attached to it. If your insurance covers disability or job loss, they may not cover your entire mortgage payment. Instead, they ll cover a certain amount that s specified in your contract.

Mortgage protection insurance is not the same thing as private mortgage insurance, which goes to the lender if you default on your mortgage, and doesn t have a specific benefit for you the borrower. Mortgage protection insurance, however, protects you as a borrower. Although many lenders offer the insurance, it s not built to protect them.

Benefits of Mortgage Protection Insurance

  1. Very high acceptance rates. There are very few reasons why an insurance provider would turn you down for mortgage protection insurance. While many people are counting on their life or disability insurance to cover these costs, some people have trouble getting life insurance because of their age or pre-existing medical conditions. If you re in this scenario, then mortgage protection insurance can be your best option to protect your family s standard of living.
  2. Peace of mind. As with any insurance policy, you never really know if you will ever use the insurance. But the safety net of insurance provides peace of mind. Some people go to work every day wondering what will happen to their home if they lose their job or become disabled. With the right mortgage protection insurance, you don t have to stress and you ll know that your payments will be made.

Drawbacks

  1. Maximum payment limitations. If you lose your job, your policy will not provide a sum of money equal to your normal monthly wages. Instead, how much you receive will be defined in your contract policy as a set amount or percentage. This may not seem entirely fair at first, but insurance companies place this limit to motivate a quick return to work.
  2. Balancing your budget. If you have a very low mortgage payment, mortgage protection insurance may not be worth the commitment for you. Conservative investing in an emergency fund can give you enough of a cushion to make your monthly payments during unemployment or a disability. Maintaining an emergency fund about 3-6 months salary is your way to make sure you can stay up to date on your payments without surrendering the monthly premium to an insurance company.
  3. Declining value over time. If you take out a $200,000 life insurance policy and keep paying your premiums, your heirs will receive $200,000, regardless of when you pass away. Mortgage protection insurance, however, only covers the payoff amount on your mortgage, which goes down as you keep paying it every month. That means if you ve owned your home for 20 years, and you originally had a payoff amount of $200,000, your payoff amount will have declined significantly by now. Despite that falling payoff amount, you ll still probably be paying the same premium on your mortgage protection insurance.

Alternatives to Mortgage Insurance

Many people use mortgage protection insurance in place of or along with traditional life insurance or disability insurance. If you can get approved with a good rate for either of these products, you can count on having that money in case of disability or death as long as you are able to maintain your premium payments.

Few agencies, however, will offer job-loss insurance, and some mortgage protection insurance plans will cover some or all of your mortgage payments if you lose your job. You can also focus on beefing up your emergency fund so you ll be able to cover several months worth of mortgage payments in case you become disabled or lose your job.

Final Word

If you have a risky job or health concerns that make life insurance or disability insurance difficult to obtain, you should look into your options in mortgage protection insurance policies. Make sure you take the time to shop around before making a final decision you need to know the details of the policy before you commit. Questions to ask include what the policy covers, the monthly cost, the payout you can expect, when the policy would pay out, and any other features that are important to you and your family.

Have you used mortgage protection insurance? How did it work out for you? If you don t carry mortgage protection insurance, what s your backup plan?


NO-DIG Pipe #trenchless #sewer #repair #pros #and #cons


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Logan Clay Products’ NO-DIG® Pipe for Gravity Sanitary Sewers

Trenchless Installation with Vitrified Clay Jacking Pipe

For more videos of both trenchless and open trench installations, visit the NCPI YouTube channel

No Open Trenches (Reduced Disruption):

A minimized excavation and construction footprint compared to open trench installations of gravity sanitary sewers means local businesses, streets and the landscape won’t suffer through the construction phase of the project. The reliable accuracy of line and grade for pilot tube installations means you can avoid existing utilities as well. Municipalities frequently realize significant savings by eliminating the need to rebuild roads.

Keeping businesses, including golf courses and shopping malls open and fully functioning throughout the project has proven to be a key benefit of trenchless installations. Supporting the political and economic drivers of a community can be invaluable.

The desire to preserve and protect environmentally sensitive areas have also driven the selection of trenchless methods of installation. Reduced congestion, reduced trucking activity and a low environmental disruption all combine to make trenchless the environmentally preferable installation method.

No Trench to Backfill (Reduced Trucking Materials):

Jacking and receiving pits are the only areas that require excavation, so those are the only areas that need to be restored. No open trench means minimal or zero imported bedding material or removal of trench spoils. Limited surface disruption also means minimal cutting of existing pavement and significant reduction in settlement.

Greater Depths (Reduce Lift Stations Greater Design Options):

The ability to install at greater depths for gravity sanitary sewers means you can reduce or eliminate lift stations, eliminating initial costs and reducing the associated long-term operating and maintenance expenses.

Why Pilot Tube Method with VCP?

  • The most accurate small diameter trenchless method for gravity flow systems. Accurate to within ¼” over a single drive of 400’.
  • Frequently less expensive than other guided trenchless methods suited for gravity flow.
  • VCP has a designed compressive strength of 7,000 psi (per ASTM C1208). Actual NO-DIG pipe test results consistently average 18,000 psi. This compressive strength allows for drives of up to 500’ (dependent upon pipe diameter, soil conditions, etc.)
  • Environmental preference: Trenchless is the most environmentally responsible method of installation and vitrified clay is a naturally sustainable product.
  • Proven in a variety of soil conditions in the USA and Canada for over 20 years.
  • Why Trenchless Instead of Open Trench?

    There are a host of reasons, but here are the key reasons engineers cite:

    • No Open Trenches – Significantly reduces disruption to the community, utilities (including fiber optics), businesses, streetscapes and traffic patterns and eliminates the need to repair or replace streets.
  • No Trench to Backfill – Eliminates the need to import foundation, bedding and backfill materials, greatly reducing truck traffic and disruption to the community.
  • Greater Depths of Installation – Increase the design options available and reduce or eliminate the expense of lift stations.
  • The information provided here is by no means comprehensive. For a full discussion of the pros and cons of trenchless installation with VCP, please contact us.


    How Do FHA Loans Work? (Pros and Cons) #commercial #mortgage


    #fha mortgages

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    FHA Loan Basics

    Updated June 27, 2016

    Loans from the Federal Housing Administration (FHA) are popular options for borrowers because they allow you to buy a home with a relatively small down payment. Designed to promote home ownership, FHA loans make it easier for people to qualify for a mortgage. But they’re not for everybody, so it pays to understand how they work and when they work best

    What is an FHA Loan?

    An FHA loan is a home loan that is insured by the FHA.

    In other words, the offers a guarantee to your bank: if you fail to repay the mortgage, FHA will step up and repay the bank instead. Because of this guarantee, lenders are willing to make large mortgage loans in cases when they’d otherwise be unwilling approve loan applications The FHA, an agency of the United States government, has plenty of dough to deliver on that promise.

    Why are They so Great?

    FHA loans are not perfect, but they are a great fit in some situations. The main appeal is that they make it easy to buy property, but don’t forget that those benefits always come with tradeoffs. Here are some of the most attractive features:

    Down payment: FHA loans allow you to buy a home with a down payment as small as 3.5%. Other loan programs generally require a much larger down payment. If you have more than that, you might be better off making a larger down payment (be sure to look at the big picture).

    Other peoples’ money: it’s easier to use gifts for down payment and closing costs. In addition, sellers can pay up to 6% of the loan amount towards a buyer’s closing costs. You’re most likely to benefit from that in a buyer’s market, but those do come around from time to time.

    Assumable: a buyer can “take over” your FHA loan if it’s assumable. That means they’ll pick up where you left off – benefiting from lower interest costs (because you’ve already gone through the highest-interest years). Depending whether or not have changed by the time you sell, the buyer might also enjoy a low interest rate that’s unavailable elsewhere.

    A chance to reset: If you’ve recently come out of bankruptcy or foreclosure, it’s easier to get an FHA loan than a loan that does not come with any government guarantee (two or three years after financial hardship is enough to qualify with FHA).

    Home improvement: certain FHA loans can be used to pay for home improvement (through FHA 203k programs)

    Qualification: it’s easier to qualify for an FHA loan.

    How do you Qualify for an FHA Loan?

    The FHA makes it relatively easy to qualify for a loan. Again, the government guarantees the loan, so lenders are more willing to approve loans. However, lenders can (and do) set standards that are stricter than FHA requirements.

    If you’re having trouble with one FHA approved lender, you might have better luck with another.

    Note: you never know until you apply. Even if you think you won’t qualify after reading this page, talk with an FHA approved lender to find out for sure.

    Income limits: there are none. You’ll need enough to show that you can repay the loan (see below) but these loans are geared towards lower income borrowers. If you’re fortunate enough to have a high income, you aren’t disqualified like you might be with certain first time home buyer programs.

    Debt to income ratios : to qualify for an FHA loan, you’ll need to have reasonable debt to income ratios. That means that the amount you spend on monthly payments needs to be “reasonable” when compared to your monthly income. In general, you have to be better than 31/43, but in some cases it’s possible to get approved with D/I ratios closer to 55%.

    Example: assume you earn $3,500 per month. To meet the requirements, it is best to keep your monthly housing payments below $1,225 (because $1,225 is 31% of $3,500). If you have other debts (such as credit card debt ), all of your monthly payments combined should be less than $1,505.

    To figure out how much you might spend on a mortgage payment. use our online calculator .

    Credit score: borrowers with low credit scores are more likely to get approved if they apply for an FHA loan. Scores can go as low as 580 if you want to make a 3.5% down payment. If you’re willing and able to make a larger down payment, your score can potentially be lower still.

    Loan amount : there are limits on how much you can borrow. In general, you’re limited to modest loan amounts relative to home prices in your area. To find the limits in your region, visit HUD’s Website .

    How do FHA Loans Work?

    The FHA promises to pay lenders if a borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1.75%. They also pay a modest ongoing fee with each monthly payment.

    If a borrower defaults on an FHA loan, the FHA uses those collected insurance premiums to compensate the bank.

    Why Not Use an FHA Loan?

    While they come with appealing features, you may find that FHA loans are not for you. They may not provide enough money if you need a large loan. But the main drawback is that the upfront mortgage insurance premium (and ongoing premiums) can cost more than private mortgage insurance would cost.

    In some cases, you can still buy a house with a very little down using a standard loan (not an FHA loan). Especially if you’ve got good credit. you might find competitive offers that beat FHA loans.

    As always, you should compare offers from several different lenders – including FHA loans and conventional loans – before you agree to anything.


    Reverse Mortgage Pros and Cons #mortgage #calculator #uk


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    Reverse Mortgage Pros and Cons

    Pros of Reverse Mortgages

    • Allows the homeowner to stay in the home.
    • Can pay off existing mortgages on the home.
    • No monthly mortgage payments are required, however the homeowner must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
    • The homeowner receives payments on flexible terms:
      • Credit line for emergencies
      • Monthly payments
      • Lump sum distribution
      • Any combination of the above
    • A reverse mortgage can not get upside down so the heirs will never be personally liable for more than the home is sold for.
    • Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.
    • Loan proceeds are not taxable.
    • The interest rate may be lower than traditional mortgages and home equity loans.

    Reverse Mortgage Cons

    • The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are:
      • FHA mortgage insurance
      • Origination fee
    • The loan balance gets larger over time and the value of the estate/inheritance may decrease over time.
    • A reverse mortgage loan usually does not affect eligibility for entitlement programs, such as Medicare or Social Security benefits. However, some needs based government benefits such as Medicaid and Supplemental Security Income (SSI) may be affected by a reverse mortgage loan. You should consult a qualified professional to determine if there would be any impact to your government benefits.
    • The program is not well understood by most individuals. However, the availability of independent reverse mortgage counseling helps.

    Next Step: Take 3 minutes now to calculate your eligibility for a reverse mortgage loan below.


    The Pros and Cons of a Reverse Mortgage #vincent #mortgage


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    The Pros and Cons of a Reverse Mortgage

    A reverse mortgage can be a valuable retirement planning tool that can greatly increase retirees income streams by using their largest assets: their homes. A reverse mortgage allows homeowners to borrow against their home s equity, while still maintaining ownership of the home.

    The best part about a reverse mortgage is that unlike conventional mortgages, there are no payments involved. Instead, the lender makes payments to the borrower either through a lump sum, monthly payments, or a line of credit.

    The reverse mortgage is repaid when the borrower dies, permanently moves from the residence, or the property is sold. Instead of you paying the bank monthly and the equity in your home growing, the bank pays you monthly, and the equity may shrink. It is important to know that you must be 62 in order to qualify.

    How can a reverse mortgage benefit me?

    A reverse mortgage can be a powerful source of funding for individuals who need to increase their income to be comfortable in retirement. The largest personal asset most retirees possess is their home. In many cases, a retiree s home is paid off. A reverse mortgage increases income without increasing monthly payments and allows a retiree to stay in his or her home.

    If you are at least 62 and considering a reverse mortgage, the amount you will be eligible for is based on several things, most importantly, the value of your home, your age, and interest rates. You will be eligible for more money the older you are, the more your home is worth, and the lower current interest rates are.

    Negative aspects of reverse mortgages

    Among the negatives of a reverse mortgage are the costs involved. All mortgages have costs, but reverse mortgage fees, which can include the interest rate, loan origination fee, mortgage insurance fee, appraisal fee, title insurance fees, and various other closing costs, are extremely high when compared with a traditional mortgage. Costs vary but can be as high as $30,000 or $40,000. This cost is not paid out of pocket, but rolled into the loan.

    Another potential issue to be aware of is the requirement to pay back the loan if you should permanently move out of the home. This may not sound like a problem now, but if you ever need to enter a full-time care facility, the loan would become due if you left your home for a year or more.

    The final downside to the reverse mortgage affects your estate. The reverse mortgage will almost always decrease the equity in your home, which will leave less money to your heirs.

    Reverse mortgage myths and the truth

    Misconceptions about reverse mortgages may cause homeowners to avoid consideration of these complex loans. Or, eligible seniors might proceed too hastily without realizing all the possible repercussions of their financial decisions. Here are a few wrong ideas and realities about this real estate option.

    Myth: The lender takes title to the home.

    Truth. You still retain ownership of your home. The reverse mortgage is only a lien against the property.

    Myth: The loan can exceed the value of the property, sticking you or your heirs with a large bill when you eventually leave your home.

    Truth: A reverse mortgage is a non-recourse loan, which means that you, your heirs, or your estate will never owe more than the appraised value of the home at loan maturity.

    Myth: You can t get a reverse mortgage if you currently have a conventional mortgage.

    Truth: Although this is true, you can get a reverse if you use the proceeds to pay off your existing mortgage at close.

    Myth: A reverse mortgage can cause you to be evicted from your home.

    Truth: You leave your home when you choose. No one will force you from your home. The reverse mortgage is not due until your home is no longer your primary residence.


    Second Mortgages: Basics, Pros and Cons #ing #mortgage #rates


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    Second Mortgages – Advantages and Disadvantages

    Updated July 10, 2016

    A second mortgage is a loan that lets you borrow against the value of your home. Your home is an asset, and over time, that asset can gain value. Second mortgages, also known as home equity lines of credit (HELOCs) are a way to put that asset towards other projects and goals.

    What is a Second Mortgage?

    A second mortgage is a loan that uses your home as collateral – similar to a loan you might have used to purchase your home.

    The loan is known as a “second” mortgage because your purchase loan is often the first loan that is secured by a lien on your home .

    Second mortgages tap into the equity in your home. which you might have built up with monthly payments or through market value increases.

    Loans can come in several different forms.

    Lump sum: a standard second mortgage is a one-time loan that provides a lump sum of money you can use for whatever you want. With that type of loan, you’ll repay the loan gradually over time, often with fixed monthly payments. With each payment, you pay a portion of the interest costs and a portion of your loan balance (this process is called amortization ).

    Line of credit: it’s also possible to borrow using a line of credit. or a pool of money that you can draw from. Whit that type of loan, you don’t ever have to take any money – but you have the option to do so if you want to. You’ll get a maximum borrowing limit, and you can continue borrowing (multiple times) until you reach that maximum limit.

    Like a credit card, you can even repay and then borrow again.

    Rate choices: depending on the type of loan you use (and your preferences), your loan might come with a fixed interest rate that helps you plan your payments for years to come. Variable rate loans are also available and are the norm for lines of credit.

    Advantages of Second Mortgages

    Loan amount: second mortgages allow you to borrow a large amount. Because the loan is secured against your home (which is generally worth a lot of money), you have access to more than you could get without using your home as collateral. How much can you borrow? It depends on your lender, but you might expect to borrow (counting all of your loans – first and second mortgages) up to 80% of your home’s value .

    Interest rates: second mortgages often have lower interest rates than other types of debt. Again, securing the loan with your home helps you because it reduces risk for your lender. Unlike unsecured personal loans like credit cards, second mortgage interest rates are commonly in the single digits.

    Tax benefits: in some cases, you’ll get a deduction for interest paid on a second mortgage. There are numerous technicalities to be aware of, so ask your tax preparer before you start taking deductions. For more information, learn about the mortgage interest deduction .

    Disadvantages of Second Mortgages

    Of course, life is full of tradeoffs. Be aware of the pitfalls of using a second mortgage. The costs and risks mean that these loans should be used wisely.

    Risk of foreclosure: one of the biggest problems with a second mortgage is that you have to put your home on the line. If you stop making payments, your lender will be able to take your home through foreclosure. which can cause serious problems for you and your family. For that reason, it rarely makes sense to use a second mortgage for “current consumption” costs such as entertainment and regular living expenses – it’s just not sustainable or worth the risk.

    Cost: second mortgages, like your purchase loan, can be expensive. You’ll need to pay numerous costs for things like credit checks, appraisals. origination fees. and more. Even if you’re promised a “no closing cost” loan, you’re still paying – you just won’t see those costs transparently.

    Interest costs: any time you borrow, you’re paying interest. Second mortgage rates are typically lower than credit card interest rates, but they’re often slightly higher than your first loan’s rate. Second mortgage lenders take more risk than the lender who made your first loan. If you stop making payments, the second mortgage lender won’t get paid unless and until the first lender gets all of their money back.

    Common Uses of Second Mortgages

    Choose wisely how you use funds from your loan. It’s best to put that money towards something that will improve your net worth (or your home’s value) in the future – because you need to repay that loan.

    • Home improvements are a common choice because the assumption is that you’ll repay the loan when you sell your home with a higher sales price
    • Avoiding private mortgage insurance (PMI) might be possible with a combination of loans – just make sure it makes sense compared to paying – and then canceling – PMI
    • Debt consolidation: you can often get a lower rate. but you might be switching from unsecured loans to a loan that could cost you your house
    • Education: as with other situations, you’re creating a situation where you could face foreclosure. See if standard student loans are a better option

    Tips for Getting a Second Mortgage

    Shop around and get quotes from at least three different sources. Be sure to include the following in your search:

    Get prepared for the process by getting money into the right places and getting your documents ready. This will make the process much easier and less stressful .

    Beware of dangerous loan features. Most conventional loans do not have these problems, but it’s worth keeping an eye out for them:

    • Balloon payments that you aren’t able to budget for
    • Voluntary insurance that might duplicate coverage you already have (or give you coverage you don’t need)
    • Prepayment penalties that prevent you from paying off your debt early

    How Do FHA Loans Work? (Pros and Cons) #mortgage #apr


    #fha mortgages

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    FHA Loan Basics

    Updated June 27, 2016

    Loans from the Federal Housing Administration (FHA) are popular options for borrowers because they allow you to buy a home with a relatively small down payment. Designed to promote home ownership, FHA loans make it easier for people to qualify for a mortgage. But they’re not for everybody, so it pays to understand how they work and when they work best

    What is an FHA Loan?

    An FHA loan is a home loan that is insured by the FHA.

    In other words, the offers a guarantee to your bank: if you fail to repay the mortgage, FHA will step up and repay the bank instead. Because of this guarantee, lenders are willing to make large mortgage loans in cases when they’d otherwise be unwilling approve loan applications The FHA, an agency of the United States government, has plenty of dough to deliver on that promise.

    Why are They so Great?

    FHA loans are not perfect, but they are a great fit in some situations. The main appeal is that they make it easy to buy property, but don’t forget that those benefits always come with tradeoffs. Here are some of the most attractive features:

    Down payment: FHA loans allow you to buy a home with a down payment as small as 3.5%. Other loan programs generally require a much larger down payment. If you have more than that, you might be better off making a larger down payment (be sure to look at the big picture).

    Other peoples’ money: it’s easier to use gifts for down payment and closing costs. In addition, sellers can pay up to 6% of the loan amount towards a buyer’s closing costs. You’re most likely to benefit from that in a buyer’s market, but those do come around from time to time.

    Assumable: a buyer can “take over” your FHA loan if it’s assumable. That means they’ll pick up where you left off – benefiting from lower interest costs (because you’ve already gone through the highest-interest years). Depending whether or not have changed by the time you sell, the buyer might also enjoy a low interest rate that’s unavailable elsewhere.

    A chance to reset: If you’ve recently come out of bankruptcy or foreclosure, it’s easier to get an FHA loan than a loan that does not come with any government guarantee (two or three years after financial hardship is enough to qualify with FHA).

    Home improvement: certain FHA loans can be used to pay for home improvement (through FHA 203k programs)

    Qualification: it’s easier to qualify for an FHA loan.

    How do you Qualify for an FHA Loan?

    The FHA makes it relatively easy to qualify for a loan. Again, the government guarantees the loan, so lenders are more willing to approve loans. However, lenders can (and do) set standards that are stricter than FHA requirements.

    If you’re having trouble with one FHA approved lender, you might have better luck with another.

    Note: you never know until you apply. Even if you think you won’t qualify after reading this page, talk with an FHA approved lender to find out for sure.

    Income limits: there are none. You’ll need enough to show that you can repay the loan (see below) but these loans are geared towards lower income borrowers. If you’re fortunate enough to have a high income, you aren’t disqualified like you might be with certain first time home buyer programs.

    Debt to income ratios : to qualify for an FHA loan, you’ll need to have reasonable debt to income ratios. That means that the amount you spend on monthly payments needs to be “reasonable” when compared to your monthly income. In general, you have to be better than 31/43, but in some cases it’s possible to get approved with D/I ratios closer to 55%.

    Example: assume you earn $3,500 per month. To meet the requirements, it is best to keep your monthly housing payments below $1,225 (because $1,225 is 31% of $3,500). If you have other debts (such as credit card debt ), all of your monthly payments combined should be less than $1,505.

    To figure out how much you might spend on a mortgage payment. use our online calculator .

    Credit score: borrowers with low credit scores are more likely to get approved if they apply for an FHA loan. Scores can go as low as 580 if you want to make a 3.5% down payment. If you’re willing and able to make a larger down payment, your score can potentially be lower still.

    Loan amount : there are limits on how much you can borrow. In general, you’re limited to modest loan amounts relative to home prices in your area. To find the limits in your region, visit HUD’s Website .

    How do FHA Loans Work?

    The FHA promises to pay lenders if a borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1.75%. They also pay a modest ongoing fee with each monthly payment.

    If a borrower defaults on an FHA loan, the FHA uses those collected insurance premiums to compensate the bank.

    Why Not Use an FHA Loan?

    While they come with appealing features, you may find that FHA loans are not for you. They may not provide enough money if you need a large loan. But the main drawback is that the upfront mortgage insurance premium (and ongoing premiums) can cost more than private mortgage insurance would cost.

    In some cases, you can still buy a house with a very little down using a standard loan (not an FHA loan). Especially if you’ve got good credit. you might find competitive offers that beat FHA loans.

    As always, you should compare offers from several different lenders – including FHA loans and conventional loans – before you agree to anything.


    Pros and Cons of Adjustable Rate Mortgages #amortization #schedule #for #mortgage


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    Adjustable Rate Mortgages

    Updated March 15, 2016

    Adjustable rate mortgages (ARMs) are home loans with a rate that varies. As interest rates rise and fall in general, rates on adjustable rate mortgages follow. These can be useful loans for getting into a home, but they are also risky. This page covers the basics of adjustable rate mortgages.

    The Rate

    Adjustable rate mortgages are unique because the interest rate on the mortgage adjusts with interest rates in the marketplace.

    This is important because mortgage payment amounts are determined (in part) by the interest rate on the loan. As the interest rate rises, the monthly payment rises. Likewise, payments fall as interest rates fall.

    The rate on your adjustable rate mortgage is determined by some market index. Many adjustable rate mortgages are tied to the LIBOR, Prime rate. Cost of Funds Index, or other index. The index your mortgage uses is a technicality, but it can affect how your payments change. Ask your lender why they’ve offered you an adjustable rate mortgage based on a given index.

    Adjustable Rate Mortgage Benefits

    A main reason to consider adjustable rate mortgages is that you may end up with a lower monthly payment. The bank (usually) rewards you with a lower initial rate because you’re taking the risk that interest rates could rise in the future. Contrast the situation with a fixed rate mortgage. where the bank takes that risk.

    Consider what happens if rates rise: the bank is stuck loaning you money at a below-market rate when you have a fixed rate mortgage. On the other hand, if rates fall, you’ll simply refinance and get a better rate.

    Pitfalls of Adjustable Rate Mortgages

    Alas, there is no free lunch. While you may benefit from a lower payment. you still have the risk that rates will rise on you.

    If that happens, your monthly payment can increase dramatically. What was once an affordable payment can become a serious burden when you have an adjustable rate mortgage. The payment can get so high that you have to default on the debt.

    Managing Adjustable Rate Mortgages

    To manage the risks, you’ll want to pick the right type of adjustable rate mortgage. The best way to manage your risk is to have a loan with restrictions and “caps”. Caps are limits on how much an adjustable rate mortgage can actually adjust.

    You might have caps on the interest rate applied to your loan, or you might have a cap on the dollar amount of your monthly payment. Finally, your loan may include a guaranteed number of years that must pass before the rate starts adjusting – the first five years, for example. These restrictions remove some of the risk of adjustable rate mortgages. but they can also create some problems.

    Now you re up to speed on how ARM mortgages work. Let s look at how they sometimes don t work in your favor. Note that the term ARM Mortgage is redundant – the M is for mortgage – but we ll use this term throughout this page for familiarity.

    ARM mortgage caps can work in a variety of ways. There are periodic caps and lifetime caps. A periodic cap limits how much your rate can change during a given period – like a one year period.

    Lifetime caps limit how much your ARM mortgage rate can change over the entire life of the loan.

    ARM Mortgage Examples

    Assume you have a periodic cap of 1% per year. If rates rise 3% during that year, your ARM mortgage rate will only rise 1% because of the cap. Lifetime caps are similar. If you’ve got a lifetime cap of 5%, the interest rate on your loan will not adjust upward more than 5%.

    Keep in mind that interest rate changes in excess of a periodic cap can carry over from year to year. Consider the example above where interest rates rose 3% but your ARM mortgage cap kept your loan rate at a 1% increase. If interest rates are flat the next year, it’s possible that your ARM mortgage rate will rise another 1% anyway — because you still “owe” after the previous cap.

    There are a variety of ARM mortgage flavors available. For example, you might find the following:

    • 10/1 ARM Mortgage – the rate is fixed for 10 years, then adjusts every year (up to the cap, if any)
    • 7/1 ARM Mortgage – the rate is fixed for 7 years, then adjusts every year (up to the cap, if any)
    • 1 Year ARM Mortgage – the rate is fixed for one year then adjusts annually up to any caps

    Not All Caps are Created Equal

    Note that caps may differ over the life of your loan. The first adjustment may be up to 5%, while subsequent adjustments may be capped at 1%.

    If this is the case on an ARM mortgage you’re considering, be prepared for a wild swing in your monthly payments when the first reset rolls around.

    Pitfalls of Caps

    While caps and restrictions may protect you, they can cause some problems. For example, your ARM mortgage may have a limit on how high the monthly payment will go – regardless of movements in interest rates. If rates get so high that you hit the upper (dollar) limit on your payments, you may not be paying off all the interest you owe for a given month. When this happens, you get into negative amortization –meaning your loan balance actually increases each month.

    Buyer be Aware

    The bottom line with ARM mortgages is that you need to know what you’re getting into. Your lender should explain some worst-case-scenarios so that you aren’t blindsided by payment adjustments. Most borrowers look at these what-ifs and assume that they will be in a better position to absorb payment increases in the future – whether it’s 5 or 10 years out.

    This very well may be the case, but things don’t always work out the way we’ve planned.