What is Mortgage Amortization and How Does it Work? #mortgage #questions


#mortgage loan amortization

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What is Mortgage Amortization and How Does it Work?

Paying off a mortgage is an overwhelming task.

A mortgage is a big debt—almost as big as your house—so the best most of us can hope to do is to shorten the term by prepaying as much of the loan that we can as quickly as we’re able.

Why should we want to do that?

Owning your home free and clear is a good place to be. You’re living in your home with no mortgage payment and that’s when saving money and life in general get easier.

But there’s something more.

The cumulative interest on mortgage loans makes your loan balance even bigger.

A mortgage of $200,000 will require nearly $350,000 in monthly payments over a 30 year period. Anything you can do to shorten the term can save a lot of money.

What is Mortgage Amortization?

Amortization —the built in payoff calculation contained in most mortgages—is your best tool in the process of getting your loan paid off. Amortization, simply put, is the difference between your monthly mortgage payment and the interest portion it contains .

By making prepayments on your mortgage, either by increased monthly payments or by periodic lump sum payments, you decrease the amount you owe AND the monthly interest payment. As the interest portion of your payment declines, the principal portion increases, and with it, the remaining term of the loan gets shorter.

Paying off your loan in 20 years instead of 30 will save nearly $120,000 in payments (based on a $200,000 loan), freeing up money for investing or for what ever else you want to do.

The Good and Bad News on Amortization

The good news on amortization is that it offers a guaranteed way to pay off your mortgage.

Even if you make no extra payments, because of amortization, you’ll own your home free and clear by the end of the loan term. In addition, with each payment that you make, your equity will grow just a little bit.

During the “interest only” frenzy of a few years ago, this concept seemed to get lost in the all consuming drive for lower monthly payments.

The bad news is that amortization is slow very slow!

Like snail slow.

Like, I paid how much towards my mortgage but the principle only went down that much. slow.

Because interest is front-loaded on a mortgage (most of the interest is paid in the early years, most of the principal is paid in the later years), it will be many years into your mortgage before you’ll start seeing any meaningful decline in your loan balance.

By making prepayments you can accelerate the amortization process, enabling you to pay your mortgage off early .

An Example of How Mortgage Amortization Works

The best way to see how mortgage amortization works in real life is with an example.

Let’s assume you take a 30 year fixed rate loan of $200,000 with an interest rate of 4.00%, how will that look at different intervals?

Beginning of loan, first payment:

Your mortgage amortization tells you how much you are paying in interest versus principle every month.

Monthly payment: $954.83
Principal portion: $288.16
Interest portion: $666.67
Remaining loan balance: $199,712

After five years, payment number 61:

Monthly payment: $954.83
Principal portion: $351.85
Interest portion: $602.98
Remaining loan balance: $180,543

After ten years, payment number 121:

Monthly payment: $954.83
Principal portion: $429.60
Interest portion: $525.23
Remaining loan balance: $157,139

As you can see from this example, about 70% of the first payment is interest—you’re hardly making a dent in the principal balance. In fact, you’ll have paid off less than $3,500 in principal during the first year of the loan.

After five years, your principal portion has only increased by about $64 per month and you still owe 90% of the original loan amount!

You’ll have to hit payment number 153—12 years and nine months into the mortgage—before the principal portion of your payment first edges out the interest portion!

And at that point, nearly 13 years into the loan, you’ll still owe a balance of $142,608, or more than 70% of the original loan balance. And you’re nearly halfway through the loan term!

Moral of the amortization story: amortization is a slow process, which is why it’s so important to begin prepaying your mortgage as early in the term as possible .

Try playing around with a mortgage calculator to see how much money you can save by accelerating the amortization process with extra payments.

A little each month or a lump sum here and there can make a big difference .

How Amortization Can Work Against You if You Refinance

As you can see from the example above, amortization works its magic very slowly over a long period of time.

Because of this, you have to consider the impact that a refinance will have on your efforts to one day own your home mortgage-free.

One of the primary reasons people refinance is to lower their monthly payment.

Getting a lower interest rate is one way to do this, but another is to lengthen the term of your new loan.

If you’re ten years into a 30 year loan, and you refinance back to another 30 year loan, your new payment will be lower, but you’ll achieve that by starting the amortization process all over again.

The best course—if you want to keep yourself on the original payoff schedule—is to set the term of the new loan to no more than the number of years you have remaining on the old loan, or in this case 20 years.

If you’re seven years into a 30 year loan, a refinance should be limited to 23 years—the same number you have to go on your current mortgage.

The recasting of loan terms back to 30 years was one of the biggest reasons why so many people watched their equity evaporate during the housing meltdown.

If you keep recasting your mortgage back to 30 years, your amortization will remain stuck in slow motion robbing you of the best chance you have to payoff your mortgage. Think about this the next time you decide to refinance.

Finally

Amortization is something of an strange term, but you don t have to shy away from it. What it basically means is your loan was set up in a way that will take a specific amount of time to repay it. As you go along, some of your payment goes to the interest and some to the principle. How much goes to each will change over time.

With mortgage amortization you pay a lot more interest in the beginning than principle. Keep this in mind if you ever want to refinance since you ll have a new amortization schedule.

Also, realize that the quicker you can start paying more toward your principle, the quicker you build up your equity and you pay off your loan faster too.

Mortgage amortization can help and hurt you, depending on how you use it.

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Second Mortgage: How Does It Work? #what #is #arm #mortgage


#second mortgage

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Get a free assessment

Second Mortgage

What is a second mortgage?

A second mortgage is a charge over a property that already has another mortgage on it. The mortgages are ranked in the order in which they were lodged. In the event that the debt isn’t paid and the property is sold the lenders will receive their money in order of priority with the 1st mortgage being paid back before any money is paid to the 2nd or 3rd mortgagee.

For example if you had a mortgage with Westpac for $100,000 secured on your home and you then applied for a $100,000 loan with ANZ this would be set up as a 2nd mortgage behind the Westpac loan. In the event that you didn’t pay back your loans and the property was sold for $190,000 then Westpac would be repaid in full and ANZ would receive whatever was left over.

Why would you use a second mortgage?

Most people prefer to refinance their loan to another lender rather than obtain a 2nd mortgage. However there are some situations where a 2nd mortgage is more appropriate:

  • Fixed rates: If your 1st mortgage is a fixed rate loan then there may be high exit fees or you may not want to refinance because your fixed rate is much lower than the current variable rates. In this situation you may borrow additional money using a 2nd mortgage.
  • Guarantor support: If you are helping your children buy their first home then you may guarantee their loan using a 2nd mortgage over your property as additional security for the bank.
  • Private lenders: Many private lenders that can advance funds within 48 hrs will take a 2nd mortgage behind a major bank as security for their loan. We recommend that you avoid using private lenders at all costs.

How much can you borrow?

  • 2nd mortgage with the same bank: up to 95% of the property value.
  • 2nd mortgage with a different bank: up to 85% of the property value.
  • Low doc: Not available except through private lenders.
  • Discounts: Lenders rarely offer rate discounts on 2nd mortgages.
  • Note: The lender that has the 1st mortgage has to consent to you obtaining a 2nd mortgage on your property. They do not usually stop you from doing so, but will usually charge a fee of around $300 for assessing your request.

Why are the banks so conservative?

By their very nature 2nd mortgages are very poor security for a loan compared to a 1st mortgage. Because of the complexities of two lenders being involved and the low priority of the debt in the event that you default on your loan, most banks limit the amount you can borrow or refuse to do business with you.

Hello. How do we arrange the second mortgage consent for my parent s property as they ll providing guarantee for me to purchase my home next month.

Hi Rose, your parents will have to contact their lender to arrange second mortgage consent. Usually, the lender will provide consent for the second mortgage.


How easy is it to get a 40-year mortgage? #mortgage #rates


#40 year mortgage

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How easy is it to get a 40-year mortgage?

Rising house prices and tough affordability requirements are forcing borrowers to take on mortgages with terms of up to 40 years. But how easy is it to get a very long loan and which lenders offer them?

Some 20pc of property buyers searched for very long-term loans between April and July this year, according to brokerage Mortgage Advice Bureau. This was up from 8pc during the same period in 2014.

The trend is mainly a result of rapidly rising house prices and lacklustre wage growth. By taking a longer term loan borrowers can reduce their monthly repayments, which helps meet affordability requirements.

While 25 years is the standard mortgage term, most lenders will extend this to 35 or even 40 years.

Which lenders offer longer terms?

Natwest and Virgin will agree to 35-year terms, while Halifax and Nationwide, plus some of the smaller building societies such as Ipswich and Nottingham, will offer 40-year terms.

HSBC on the other hand will only lend for up to 30 years.

Securing a very long loan is not difficult. Borrowers can simply request a longer term when they apply for a specific mortgage deal.

What about older borrowers?

There are limitations. David Hollingworth, of mortgage broker London and Country, said lenders maximum age caps mean that few people aged in their mid to late thirties or older will be able to take out longer deals. This limits the market mainly to first and second-time buyers.

The natural limitation here is the maximum lending age, he said. This varies across lenders but most will typically require the mortgage to finish by age 65. This is slowly changing though and some lenders will accept borrowers who say they plan to work to age 70 for example.

While some may be able to borrow into retirement, in most cases lenders will require proof of retirement income, which can be very difficult to produce.

What about the costs?

While longer-term loans will bring down monthly costs, the additional interest that builds up over time is substantial.

Take a £200,000 repayment mortgage with a rate of 3pc. Over 25 years, the monthly repayments would be £948 and the total interest payable over the life of the loan would be £84,526.

The same mortgage taken over 35 years would have lower monthly repayments of £770, but the overall interest would reach £123,274 some £38,748 more.

Monthly cost of your repayments


Private Mortgage Insurance: Avoid It for These 6 Reasons #home #refinance #loans


#pmi mortgage insurance

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Private Mortgage Insurance: Avoid It for These 6 Reasons

If you’re thinking of buying a home. you should ideally save up enough money for a 20% down payment. If you can’t, it’s a safe bet that your lender will force you to secure private mortgage insurance (PMI) prior to signing off on the loan. The purpose of the insurance is to protect the mortgage company if you default on the note.

Private mortgage insurance sounds like a great way to buy a house without having to save up the cash for a down payment. Sometimes it is the only – or even the best – option for new homebuyers. However, there are several reasons would-be homeowners should try to avoid paying this insurance. In this article, we’ll examine the six common problems with PMI and explore a possible solution that allows homebuyers to avoid it altogether.

Six Good Reasons to Avoid PMI

  1. Cost – Private mortgage insurance typically costs between 0.5% to 1% of the entire loan amount on an annual basis. On a $100,000 loan this means the homeowner could be paying as much as $1,000 a year, or $83.33 per month – assuming a 1% PMI fee. (Calculated as: $100,000 x 1% = $1,000 / 12 = $83.33) By itself that’s a pretty hefty sum. However, the average home price, according to the National Association of Realtors is about $230,000, which means families could be spending nearly $200 a month on the insurance. That’s as much as a car payment!
  2. May Not Be Deductible Private mortgage insurance contracts are tax deductible – but only if the married taxpayer earns less than $110,000 per year (in adjusted gross income ). For married couples filing separately, that threshold is $55,000. This means many dual-income families with a combined income just above the threshold will be left out in the cold. While there are rumors this “income cap” could be raised in the future, there is no guarantee it will happen. Many homeowners (particularly those just above the threshold) may be better off making a larger down payment where at least they’ll have the peace of mind that the interest on the loan is be deductible. For more on this important deduction, read How To Get Rid of Private Mortgage Insurance .
  3. Your Heirs Get Nothing – Most homeowners hear the word “insurance” and assume that their spouse or their kids will receive some sort of monetary compensation if they die. This is simply not true. The lending institution is the sole beneficiary of any such policy, and the proceeds are paid directly to lender (not indirectly to the heirs first). If you want to protect your heirs and provide them with money for living expenses upon your death, you’ll need to obtain a separate insurance policy. Don’t be fooled into thinking PMI will help anyone but your mortgage lender.
  4. Giving Money Away Homebuyers who put down less than 20% of the sale price will have to pay mortgage insurance until the total equity of the home reaches 20%. This could take years, and it amounts to a lot of money the homeowner is literally giving away. To put the cost into better perspective, if a couple who own a $250,000 home were to instead take the $208 per month they were spending on PMI and invest it in a mutual fund that earned an 8% annual compounded rate of return, that money would grow to $37,707 (assuming no taxes were taken out) within 10 years.
  5. Hard To Cancel As mentioned above, usually when a homeowner’s equity tops 20%, he or she no longer has to pay PMI. However, eliminating the monthly burden isn’t as easy as just not sending in the payment. Many lenders require the homeowner to draft a letter requesting that the PMI be canceled, as well as receive a formal appraisal of the home prior to its cancelation. All in all, this could take several months depending upon the lender.
  6. Payment Goes On and On – One final issue that deserves mentioning is that some lenders require the homeowner to maintain a PMI contract for a designated period of time. So, even if the homeowner has met the 20% threshold, he or she may still be obligated to keep paying for the mortgage insurance. Check with your lender and read the fine print of a PMI contract for more specifics.

It’s Not All Bad

For many Americans PMI is deductible.Those families who itemize their deductions and earn less than $110,000 per year, will find that their PMI is deductible. For a couple with a $250,000 loan and a $2,500 annual PMI payment (1% of the outstanding loan), this deduction could translate into savings of $300 to $400 dollars or more (depending upon the couple’s tax bracket ).

Also private mortgage insurance often can be paid up front. For those people that don’t want to work the cost of PMI into their monthly budgets, some lenders will allow for the payment to be made up front, in cash, at the time of mortgage origination. In some cases the lender will even offer the homeowner a discount for paying up front. Another option that many lenders offer is to add the one-time upfront fee to the outstanding loan balance. The advantage to this is that, amortized over a period of 25 or 30 years, the monthly cost is fairly low.

A final “benefit” of PMI is that once you have finished paying off your insurance policy, the mortgage itself may seem easier to pay down. Of course, this is more of a psychological benefit than a financial one, but it can be a nice feeling to suddenly have a couple of hundred extra dollars coming in each month. Savvy homeowners would be wise to reinvest the money they are accustomed to budgeting for PMI or apply the funds toward the principal balance on the loan. Remember the compounding mutual fund example from earlier.

How to Avoid PMI

In some circumstances PMI can be avoided by using something called a piggy-back mortgage. It works like this: Assume that a prospective homeowner wants to purchase a house for $200,000, but he or she only has enough money saved for a 10% down payment (not enough to avoid PMI). By entering into what is known as an “80/10/10 ” agreement, the individual will take out a loan totaling 80% of the total value of the property, or $160,000. A second loan, referred to as a piggyback, will also be taken out totaling $20,000 (or 10% of the value). Finally, as part of the transaction, the buyer puts down the final 10%, or $20,000.

By splitting up the loans, the homeowner may be able to deduct the interest on both loans, and avoid PMI altogether. Of course, there is a catch. Very often the terms of the piggyback loan are risky. Many are adjustable-rate loans. may contain balloon provisions. and are due in 15 or 20 years (as opposed to more conventional loans, which are due in 30 years).

Incidentally, many lenders also offer a similar loan arrangement for buyers only able to put down 5% toward a down payment. It’s called an “80/15/5” arrangement. It works exactly the same way.

The Bottom Line

Private mortgage insurance is expensive. Unless you think you’ll be able to attain 20% equity in the home within a couple of years, it probably makes sense to either make a larger down payment or consider a piggyback loan. While often more risky than a conventional mortgage. piggyback loans are deductible and are a useful alternative for those unable to afford a larger down payment.

For more money-saving tips, see Fifteen Insurance Policies You Don’t Need .

A Securities and Exchange Commission rule that sets the conditions under which restricted, unregistered and control securities.

A type of tax credit available to students of a post-secondary educational institution, such as a college or university.

The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price.

Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is.

Social finance typically refers to investments made in social enterprises including charitable organizations and some cooperatives.

Smart beta defines a set of investment strategies that emphasize the use of alternative index construction rules to traditional.

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How difficult is it to get a mortgage in 2015? Property Crowd #fixed #mortgage


#get a mortgage

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How difficult is it to get a mortgage in 2015?

Have the new mortgage restrictions had any effect on rising UK house prices?

UK house prices rise since the global financial crash

House prices in the UK rose by 9.8% on average in the year to December 2014. This represents considerable capital appreciation and a very good return for investors, especially in comparison with the low interest rate achievable on savings, or the higher risks involved in buying and selling shares in a rising but still very volatile stock market.

However, significant house price rises are not necessarily good news – house price inflation in 2014 was the highest since 2007 and, once adjusted for inflation, 2014 prices generally surpassed the previous 2007/8 peak. There are several house price indices that can produce different results and of course there are major regional differences within the UK which widely distort conclusions drawn from nationwide averages.

Every month studies and surveys are published with the most recent suggesting a slight slow in the rate of price rises, but clearly there is widespread concern that a new housing price bubble, within the context of a still weak global economy, could trigger another financial crisis with parallels to the unprecedented economic collapse of 7 years ago. One of the characteristics of the 2007/8 situation was how easy it was to obtain mortgages and other credit, as well as the wide and confusing variety of mortgage products which were then available.

In an attempt to avoid a repetition of the financial crisis there are now various restrictions on lenders and the mortgage market which are designed to take some of the heat out of the booming property market without affecting growth and housing supply too negatively. Is this strategy of mortgage restrictions working effectively or is it too blunt an instrument which simply keeps first time buyers out of the market while prices continue to rise anyway?

Average house prices for the last eight years

Source: Land Registry.

Within London there is even more regional variation than across the whole of the UK. Currently the average house price in Kensington and Chelsea is £1,294,767, more than double the average of £606,005 seven miles away in Hackney, which in turn is more than double the average of £293,134 in nearby Newham.

The mortgage market – from reckless to draconian

Ten years ago I was moving house (again) and went to my mortgage broker to arrange a new loan. There was no sense that I wouldn’t be able to borrow whatever I needed even on a fairly average income. I was somewhat surprised to be given blank forms to sign, and the broker told me he would fill in the details when he had found me the best deal. I was told this was standard practice and would speed up the process.

My self-certified interest only loan came through within days and I was confident enough in the buoyant market to exchange contracts on the new house even though I hadn’t yet found a buyer for my old house. The mortgage came through and I never missed a payment and really did not know what the broker had put on the form with regards to my status, income or outgoings.

Recently I was having my hair cut and the barber was telling me how, having separated from his wife after selling their family home and splitting the money, he was now trying to buy a small flat to live in. He had trawled the banks, building societies and mortgage brokers but could not borrow even a relatively small amount. This was despite having a reasonable deposit and having been trading in the same hairdressing business for 12 years and always making a profit. He had eventually giving up and was resigned to living in rented accommodation for the foreseeable future. At the age of 40, having fallen off the housing ladder, he had been advised by one bank that he would never get another mortgage unless he more than doubled his income, yet he knew that he could easily afford the repayments required if only he could qualify for a new mortgage.

The reality for many people is that there has been a complete reversal of position over 8 years – then mortgages were being handed out in an unregulated, cavalier and possibly economically reckless way, whereas now mortgage restrictions seem draconian, inflexible and illogical and are putting barriers in the way of people who could and should be able to borrow for their housing needs.

Current mortgage restrictions and their effect

Potential borrowers now face detailed checks not only on their income but also on expenditure in new rules introduced by the Financial Conduct Authority under the Mortgage Market Review (MMR).

These new tests look at disposable income and also the potential to absorb higher repayments should interest rates rise. The press have been full of stories of economically viable and even quite wealthy individuals failing the MMR tests.

In one case a borrower asked his existing lender for a remortgage of less than 60pc of the value of his property. He had £800,000 in savings to cover his children’s school fees, which were actually expected to only total £400,000. He asked his lender to ignore the school fees in their affordability assessment because he had made provision for them, but it refused and declined his remortgage.

In another case, a couple were approved for a £1.9m loan before the MMR deadline. A number of delays meant their original loan agreement expired and they had to reapply under the new rules. This time their lender offered them a maximum of £1.2m because they had three children under five years old. The lender said that had the children all been over five the couple would have been offered £1.5m; £2.1m would have been available had they had no children. Are the banks really trying to say that it costs £900,000 to raise 3 children?

Britain s biggest mortgage provider, Lloyds Banking Group, set the trend by refusing to lend on mortgages of £500,000 or more if the loan is more than four times the borrower’s income. As shown above, the average London house price is almost £600,000, so a borrower would need to be earning at least £112,500 a year, assuming that he had a 25% cash deposit of £150,000 and required a loan of £450,000. The bitter reality is that the average London salary is currently £35,296. In other words, a London worker on the average salary would need to borrow just under 13 times their income to buy an average London house. There is no lender in the market today who wouldn’t refuse this point blank. Even with a large deposit from the increasingly relied upon Bank of Mum and Dad, such a borrower is very unlikely to be able to secure a loan and would have to look to buy somewhere cheaper and further away from the Central London.

Before the crisis, the average mortgage was about 6.5 times income. This figure has now fallen to 5.5 and the new restrictions are designed with a long-term target of 4 times income, not just for the higher value loans but right across the market. But as house prices soar, and incomes remain stagnant, this clearly will exclude a very large number of potential borrowers.

Recent data shows that while house prices continue to rise, the rate of increase does appear to be slowing down slightly, which may well be partly due to these mortgage restrictions. With a general election just several months away, the political parties are all trying to woo voters with various housing promises including more new build homes, special discounts for first time buyers under 40, possible VAT and Stamp Duty changes, and more social housing.

Despite all of this, it is likely to remain very difficult for first time buyers and other borrowers to either get on the housing ladder or to secure new loans with such stringent and inflexible restrictions on mortgage lending.

Property Crowd – an alternative to restrictive borrowing for property investment purposes

Tough mortgage restrictions also affect investors with some spare cash who realise that property still offers very favourable capital appreciation and solid rental income returns. People in this situation should not be put off by the hassle of trying to obtain a mortgage, as there are other viable and attractive alternatives including those provided by Property Crowd, namely crowdfunded investments in fully- managed high- yielding city-centre locations, fully. Property Crowd operates under FCA regulations and you can invest from as little as £5,000. This approach may well be much easier and straightforward than using your cash as a deposit to try to get your own buy-to-let mortgage and then have all of the headaches of managing it.


Second Mortgage: How Does It Work? #top #mortgage #lenders


#second mortgage

#

Get a free assessment

Second Mortgage

What is a second mortgage?

A second mortgage is a charge over a property that already has another mortgage on it. The mortgages are ranked in the order in which they were lodged. In the event that the debt isn’t paid and the property is sold the lenders will receive their money in order of priority with the 1st mortgage being paid back before any money is paid to the 2nd or 3rd mortgagee.

For example if you had a mortgage with Westpac for $100,000 secured on your home and you then applied for a $100,000 loan with ANZ this would be set up as a 2nd mortgage behind the Westpac loan. In the event that you didn’t pay back your loans and the property was sold for $190,000 then Westpac would be repaid in full and ANZ would receive whatever was left over.

Why would you use a second mortgage?

Most people prefer to refinance their loan to another lender rather than obtain a 2nd mortgage. However there are some situations where a 2nd mortgage is more appropriate:

  • Fixed rates: If your 1st mortgage is a fixed rate loan then there may be high exit fees or you may not want to refinance because your fixed rate is much lower than the current variable rates. In this situation you may borrow additional money using a 2nd mortgage.
  • Guarantor support: If you are helping your children buy their first home then you may guarantee their loan using a 2nd mortgage over your property as additional security for the bank.
  • Private lenders: Many private lenders that can advance funds within 48 hrs will take a 2nd mortgage behind a major bank as security for their loan. We recommend that you avoid using private lenders at all costs.

How much can you borrow?

  • 2nd mortgage with the same bank: up to 95% of the property value.
  • 2nd mortgage with a different bank: up to 85% of the property value.
  • Low doc: Not available except through private lenders.
  • Discounts: Lenders rarely offer rate discounts on 2nd mortgages.
  • Note: The lender that has the 1st mortgage has to consent to you obtaining a 2nd mortgage on your property. They do not usually stop you from doing so, but will usually charge a fee of around $300 for assessing your request.

Why are the banks so conservative?

By their very nature 2nd mortgages are very poor security for a loan compared to a 1st mortgage. Because of the complexities of two lenders being involved and the low priority of the debt in the event that you default on your loan, most banks limit the amount you can borrow or refuse to do business with you.

Hello. How do we arrange the second mortgage consent for my parent s property as they ll providing guarantee for me to purchase my home next month.

Hi Rose, your parents will have to contact their lender to arrange second mortgage consent. Usually, the lender will provide consent for the second mortgage.


It – s Settled: Principal reduction is smart policy #physician #mortgage #loans


#mortgage reduction program

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REwired

It s settled: Principal reduction is smart policy

The settlement reached this week among the Department of Justice, several state Attorneys General, and Bank of America is monumental. As the remaining cases from the mortgage crisis are resolved, this settlement represents the sort of smart and prudent deal that government and business must strike in order to hold banks accountable and alleviate the damage done to the global economy. But if there s progress to be marked by this settlement, there s much more to be done at the Federal Housing Finance Administration, the agency that has the potential to make the most of this opportunity.

Although the mortgage crisis has subsided in some states, it has also persisted in many others, particularly New York and New Jersey, where it remains a tremendous drag on the economy and a personal nightmare for countless families. The missing ingredient for a full recovery from this crisis has been principal reduction. Principal reduction is simple. It s what a rational investor does when an asset is underwater, namely, the marking down of debt to match the value of the asset.

Principal reduction is the most effective solution to resolving mortgage distress. According to Standard Poor s (which is not alone in this assessment), loans where the modification includes principal reduction are the least likely to re-default among all types of modifications. Thus, even though other types of modifications (interest rate reductions, term extensions, and so on) may be able to lower the payment similarly, their long-term performance is nowhere near as strong.

At this point in the recovery, principal reduction has been successfully applied to portfolio loans (the ones that banks hold on their own books) and to many private-label securitized loans and it has been by far the most effective solution, both in providing long-term financial stability to homeowners and in maximizing returns for investors in large part because of the significantly lower re-default rate. The only reason principal reduction has not spread to all mortgages is that the Federal Housing Finance Administration (FHFA) will not allow Fannie Mae and Freddie Mac to accept any funds for principal reduction.

Despite numerous studies showing the promising upside of principal reduction (from Moody s, Standard Poor s, the Treasury, and others), the FHFA, under its former director, Ed DeMarco, defended its decision largely on the basis of a study conducted at its request by Fannie Mae that relied on a relatively tiny sample of loans and lasted only eight months before being cut short for unexplained operational reasons.

The failure to reduce principal has not been for lack of trying from other branches of the government. The Treasury offers generous principal reduction incentives through the Making Home Affordable program and multiple mortgage settlements have included principal reduction provisions.

In the settlement announced on Thursday, Bank of America and the law enforcement agencies on the other side of the table took a major step forward toward fixing this broken policy. For the first time, loans insured by the Federal Housing Administration (FHA) will be eligible for principal reduction under the consumer relief menu in a major settlement. HUD Secretary Juli n Castro and FHA Commissioner Carol Galante are to be congratulated for taking this important step.

Yet, sadly, with Fannie Mae and Freddie Mac holding or insuring the majority of mortgage loans across the country, principal reduction remains off limits for most homeowners in distress. Under this settlement, the previous settlements with JPMorgan Chase and Citigroup, and those that will surely follow, there will be billions of dollars on the table for principal reduction, which has the potential to set tens of thousands of families on the road to financial recovery.

So what are we to do next? To start, Mel Watt, the current Director at the FHFA, must look again at the massive portfolio under the agency s control. It s a portfolio that represents not just thousands of loans, but thousands of missed opportunities at a college education, stable retirements, and altogether better lives for a large portion of America s middle class that has been unfairly punished in their pursuit to own a home and contribute to their neighborhood. The funding is there for principal reduction; to refuse to accept it is a grave error that will keep our economic recovery middling and tepid.

To be sure, there are some homeowners for whom there is ultimately no way forward in the home they re in now, and for those families, we need better solutions. The Bank of America settlement sets aside funding for the construction of affordable rental housing, which, in New York City especially, is essential to counter the affordability crisis that has been an early focus of Mayor de Blasio s administration.

It s often overlooked that former homeowners face the very same challenges that other prospective renters face. The Center for NYC Neighborhoods. a non-profit organization created in response to the mortgage crisis, manages a Housing Mobility Program that helps former homeowners in New York City who need new housing. Because these clients are often seniors on fixed incomes or New Yorkers with disabilities and limited incomes, securing their next housing option can be a daunting challenge.

To combat this problem, Bank of America and states receiving credits for the construction of affordable rental housing under the settlement should consider setting aside a portion of the units in such projects for former homeowners. This settlement is on behalf of those homeowners who were injured by the mortgage meltdown; even if they cannot stay in their homes, they should be afforded the opportunity to benefit from the settlement that is in part on their behalf.

So while we congratulate the parties to this settlement on a sound agreement, we hope that those holding the remaining keys to a true and just resolution also step forward and make prudent policy choices for the sake of an economic recovery in which we can all be winners.

This month in
Housing Wire magazine

The winners of our Insiders award are people who get things done, who are known throughout their companies as the “go-to” person in their department or division. They provide expertise in areas as diverse as operations, compliance and client services, but also have a reputation for going above and beyond their assigned roles to help out their colleagues, their companies and their clients.

Feature

In May of 2016 Airbnb had almost 1.4 listings on the site and raised its revenue projection for this year to more than $900 million. But the site impacts more than just hotel chains. As more investors, not just homeowners, use the site to rent out spare rooms — and even spare couches — it strains the supply of rental houses.

Commentary

A funny thing happened while the mortgage process became more automated. Rather than reduce human interaction, which some skeptics anticipated, automation technology is in fact having the opposite effect. It is enabling mortgage lending to become a people-first business once again.

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Rural Development Loan Information: What It Is and Who Can Use It #mortgage #calculator #arm


#rural development mortgage

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Rural Development Loan Information

Who Should Use a Rural Development Loan?

There are very few ways to purchase a home these days without a typical 3.5% down payment that is required for an FHA loan. Many home buyers are surprised to find that a rural development loan offers not only a lower payment, doesn’t require a down payment. You may be wondering how that’s possible. The answer is simple, there is no mortgage insurance added into the bottom line of the loan.

Are you dreaming of purchasing your first home or maybe buying the next dream home? Do you lack the typical down payment that most banks require or maybe you’d rather keep your savings in the bank? A rural development (RD) loan may be the answer you’re searching for. These government insured loans are one of the only options in the market today that do not require a down payment.

What is a Rural Development Loan?

We are committed to helping more people achieve the American dream of homeownership. A RD loan is a government insured loan created to increase the population and strengthen the economy in rural america. A common misconception is that RD loans are only for farmers. Almost any area outside a major metropolitan city will qualify.

Rural Development Loan Facts

Don’t let someone you don’t trust handle one of the most important financial transactions in your life. Make sure you are working with an experienced rural development loan expert who will analyze your situation to determine if a USDA rural development home loan meets your needs. Many banks and lending institutions are not familiar with USDA guidelines and some are not even aware these no money down home loans exist.

Few people are aware that Rural Development Mortgages provide government guaranteed financing for 100% loan to value for home mortgages. With a Rural Development Mortgage, there is no recapture because it is not a subsidy loan.

There are many benefits to Rural Development Mortgages that include 100% LTV based on the appraised value of your home, zero down payment, and low 30 year fixed mortgage rates. USDA s Rural Development guidelines provide flexible credit guarantees and require no mortgage insurance.

More rural families and individuals are now able to become homeowners with the help of the Rural Housing Service Programs. There are various programs available to aid low-to-moderate income rural results to purchase, construct or repair a home. Rural development mortgages allow qualified homebuyers the opportunity to get loans with very minimal closing costs and no down payment.

Section 502 Rural Housing Guaranteed Loan Program states that a loan guarantee through RHS means that, should the borrower default on the loan, RHS will pay for the loan to the private financier. The rural development loan program s purpose is to enable low and moderate income rural residents to acquire modestly priced housing for use as a primary residence. There is also a program available to purchase and repair an existing or newly constructed home.

The Section 503 Single Family Housing Direct Loan Program states that individuals or families receive direct financial assistance from the Rural Housing Service in the form of an affordable interest rate home loan. Loans are typically made for 30-33 years and eligibility is based on the family s income.

Have Questions about a Rural Development Loan? Contact Us

Unsure If You Qualify for a Rural Development Loan? Check Requirements Here


How difficult is it to get a mortgage in 2015? Property Crowd #mortgage #life #insurance


#get a mortgage

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How difficult is it to get a mortgage in 2015?

Have the new mortgage restrictions had any effect on rising UK house prices?

UK house prices rise since the global financial crash

House prices in the UK rose by 9.8% on average in the year to December 2014. This represents considerable capital appreciation and a very good return for investors, especially in comparison with the low interest rate achievable on savings, or the higher risks involved in buying and selling shares in a rising but still very volatile stock market.

However, significant house price rises are not necessarily good news – house price inflation in 2014 was the highest since 2007 and, once adjusted for inflation, 2014 prices generally surpassed the previous 2007/8 peak. There are several house price indices that can produce different results and of course there are major regional differences within the UK which widely distort conclusions drawn from nationwide averages.

Every month studies and surveys are published with the most recent suggesting a slight slow in the rate of price rises, but clearly there is widespread concern that a new housing price bubble, within the context of a still weak global economy, could trigger another financial crisis with parallels to the unprecedented economic collapse of 7 years ago. One of the characteristics of the 2007/8 situation was how easy it was to obtain mortgages and other credit, as well as the wide and confusing variety of mortgage products which were then available.

In an attempt to avoid a repetition of the financial crisis there are now various restrictions on lenders and the mortgage market which are designed to take some of the heat out of the booming property market without affecting growth and housing supply too negatively. Is this strategy of mortgage restrictions working effectively or is it too blunt an instrument which simply keeps first time buyers out of the market while prices continue to rise anyway?

Average house prices for the last eight years

Source: Land Registry.

Within London there is even more regional variation than across the whole of the UK. Currently the average house price in Kensington and Chelsea is £1,294,767, more than double the average of £606,005 seven miles away in Hackney, which in turn is more than double the average of £293,134 in nearby Newham.

The mortgage market – from reckless to draconian

Ten years ago I was moving house (again) and went to my mortgage broker to arrange a new loan. There was no sense that I wouldn’t be able to borrow whatever I needed even on a fairly average income. I was somewhat surprised to be given blank forms to sign, and the broker told me he would fill in the details when he had found me the best deal. I was told this was standard practice and would speed up the process.

My self-certified interest only loan came through within days and I was confident enough in the buoyant market to exchange contracts on the new house even though I hadn’t yet found a buyer for my old house. The mortgage came through and I never missed a payment and really did not know what the broker had put on the form with regards to my status, income or outgoings.

Recently I was having my hair cut and the barber was telling me how, having separated from his wife after selling their family home and splitting the money, he was now trying to buy a small flat to live in. He had trawled the banks, building societies and mortgage brokers but could not borrow even a relatively small amount. This was despite having a reasonable deposit and having been trading in the same hairdressing business for 12 years and always making a profit. He had eventually giving up and was resigned to living in rented accommodation for the foreseeable future. At the age of 40, having fallen off the housing ladder, he had been advised by one bank that he would never get another mortgage unless he more than doubled his income, yet he knew that he could easily afford the repayments required if only he could qualify for a new mortgage.

The reality for many people is that there has been a complete reversal of position over 8 years – then mortgages were being handed out in an unregulated, cavalier and possibly economically reckless way, whereas now mortgage restrictions seem draconian, inflexible and illogical and are putting barriers in the way of people who could and should be able to borrow for their housing needs.

Current mortgage restrictions and their effect

Potential borrowers now face detailed checks not only on their income but also on expenditure in new rules introduced by the Financial Conduct Authority under the Mortgage Market Review (MMR).

These new tests look at disposable income and also the potential to absorb higher repayments should interest rates rise. The press have been full of stories of economically viable and even quite wealthy individuals failing the MMR tests.

In one case a borrower asked his existing lender for a remortgage of less than 60pc of the value of his property. He had £800,000 in savings to cover his children’s school fees, which were actually expected to only total £400,000. He asked his lender to ignore the school fees in their affordability assessment because he had made provision for them, but it refused and declined his remortgage.

In another case, a couple were approved for a £1.9m loan before the MMR deadline. A number of delays meant their original loan agreement expired and they had to reapply under the new rules. This time their lender offered them a maximum of £1.2m because they had three children under five years old. The lender said that had the children all been over five the couple would have been offered £1.5m; £2.1m would have been available had they had no children. Are the banks really trying to say that it costs £900,000 to raise 3 children?

Britain s biggest mortgage provider, Lloyds Banking Group, set the trend by refusing to lend on mortgages of £500,000 or more if the loan is more than four times the borrower’s income. As shown above, the average London house price is almost £600,000, so a borrower would need to be earning at least £112,500 a year, assuming that he had a 25% cash deposit of £150,000 and required a loan of £450,000. The bitter reality is that the average London salary is currently £35,296. In other words, a London worker on the average salary would need to borrow just under 13 times their income to buy an average London house. There is no lender in the market today who wouldn’t refuse this point blank. Even with a large deposit from the increasingly relied upon Bank of Mum and Dad, such a borrower is very unlikely to be able to secure a loan and would have to look to buy somewhere cheaper and further away from the Central London.

Before the crisis, the average mortgage was about 6.5 times income. This figure has now fallen to 5.5 and the new restrictions are designed with a long-term target of 4 times income, not just for the higher value loans but right across the market. But as house prices soar, and incomes remain stagnant, this clearly will exclude a very large number of potential borrowers.

Recent data shows that while house prices continue to rise, the rate of increase does appear to be slowing down slightly, which may well be partly due to these mortgage restrictions. With a general election just several months away, the political parties are all trying to woo voters with various housing promises including more new build homes, special discounts for first time buyers under 40, possible VAT and Stamp Duty changes, and more social housing.

Despite all of this, it is likely to remain very difficult for first time buyers and other borrowers to either get on the housing ladder or to secure new loans with such stringent and inflexible restrictions on mortgage lending.

Property Crowd – an alternative to restrictive borrowing for property investment purposes

Tough mortgage restrictions also affect investors with some spare cash who realise that property still offers very favourable capital appreciation and solid rental income returns. People in this situation should not be put off by the hassle of trying to obtain a mortgage, as there are other viable and attractive alternatives including those provided by Property Crowd, namely crowdfunded investments in fully- managed high- yielding city-centre locations, fully. Property Crowd operates under FCA regulations and you can invest from as little as £5,000. This approach may well be much easier and straightforward than using your cash as a deposit to try to get your own buy-to-let mortgage and then have all of the headaches of managing it.


It tech school online #it #tech #school #online


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neveragain.tech

We, the undersigned, are employees of tech organizations and companies based in the United States. We are engineers, designers, business executives, and others whose jobs include managing or processing data about people. We are choosing to stand in solidarity with Muslim Americans, immigrants, and all people whose lives and livelihoods are threatened by the incoming administration s proposed data collection policies. We refuse to build a database of people based on their Constitutionally-protected religious beliefs. We refuse to facilitate mass deportations of people the government believes to be undesirable.

We have educated ourselves on the history of threats like these, and on the roles that technology and technologists played in carrying them out. We see how IBM collaborated to digitize and streamline the Holocaust. contributing to the deaths of six million Jews and millions of others. We recall the internment of Japanese Americans during the Second World War. We recognize that mass deportations precipitated the very atrocity the word genocide was created to describe: the murder of 1.5 million Armenians in Turkey. We acknowledge that genocides are not merely a relic of the distant past among others, Tutsi Rwandans and Bosnian Muslims have been victims in our lifetimes.

Today we stand together to say: not on our watch, and never again.

We commit to the following actions:

  • We refuse to participate in the creation of databases of identifying information for the United States government to target individuals based on race, religion, or national origin.
  • We will advocate within our organizations:
    • to minimize the collection and retention of data that would facilitate ethnic or religious targeting.
    • to scale back existing datasets with unnecessary racial, ethnic, and national origin data.
    • to responsibly destroy high-risk datasets and backups.
    • to implement security and privacy best practices, in particular, for end-to-end encryption to be the default wherever possible.
    • to demand appropriate legal process should the government request that we turn over user data collected by our organization, even in small amounts.
  • If we discover misuse of data that we consider illegal or unethical in our organizations:
    • We will work with our colleagues and leaders to correct it.
    • If we cannot stop these practices, we will exercise our rights and responsibilities to speak out publicly and engage in responsible whistleblowing without endangering users.
    • If we have the authority to do so, we will use all available legal defenses to stop these practices.
    • If we do not have such authority, and our organizations force us to engage in such misuse, we will resign from our positions rather than comply.
  • We will raise awareness and ask critical questions about the responsible and fair use of data and algorithms beyond our organization and our industry.

Signatories references to affiliated organizations below are for identification purposes and are not intended to imply an endorsement by the organization.

How to participate

The response to this pledge has been much larger than we expected; thank you for your support!

We do our best to verify every signature that appears on this page. It requires a great deal of human effort to verify thousands of signatures, so we stopped accepting new signatures for manual verification at noon PST Dec 21. after accepting signatures for 8 days. We are still processing a large backlog of submitted signatures, so the number of signatures on this page will continue to increase, but we are no longer accepting new signatures.

Even though we are no longer accepting new signatures to show on this page, you can still sign the pledge or take action in many ways. Learn more about what you can do.

Footnotes