Jan 05
adminCheap Mortgages
Many people make a major mistake when applying for a mortgage. They are so relieved to get the loan that they fail to pay attention to prepayment penalties in the loan documents.
Prepayment Penalties
With the refinance craze of the last few years, many borrowers have been surprised to find they are locked into their loan with prepayment penalties. Boiled down, these penalties require borrowers to pay fees if they pay off the loan prior to a certain point in time. By including such language in the loan documents, some lenders are trying to ensure they will recover a certain amount in interest on a loan as well as reach a certain maturity date on the loan. Lucky you.
Prepayment penalties come in a variety of forms. First and foremost, state law controls the amount and types of penalties that can be charged by a lender. Of course, this means each state has different laws and you should make sure you understand what can be done in yours.
As to the payments themselves, they typically come in two forms. The first is a percentage of the overall loan For instance, assume you have a 400,000 mortgage and the prepayment penalty is 3 percent. Your prepayment penalty will be 12,000. This is typically true even if you are selling your home because of financial difficulties.
In some states, prepayment penalties can come in the amount of interest to be charged over a period. Assume you are paying 2,000 a month in interest on your loan. The prepayment penalty may be something equal to 10 months of interest from the date of prepayment. Put another way, you are looking at a 20,000 prepayment penalty. Obviously, such a payment is going to be a dent in any profit you would pull from the home.
Lenders are not required to identify prepayment penalty language in loan documents. You absolutely must read your loan documents to make sure penalties arent included.
Prepayment penalties are not mandatory in loan documents. If a lender refuses to waive the penalties, make sure to shop around for a better deal. Dont get pounded on the back end of the loan.
Dec 29
adminCheap Mortgages
The average price of a house in the UK is now well over 100,000, and not many people would be able to find such a huge sum hidden under the mattress. This means that the majority of us have to borrow to buy our home, and usually this means taking out a mortgage.
Dont Want To Be In Debt?
Debt is now a fact of life for all but the most fortunate of us whether that means a small overdraft or a large mortgage. Thankfully this no longer carries the stigma of yesteryear, and as long as you properly manage your debts there should be no reason to fret about owing money. In fact, having a mortgage will improve your credit and help to convince your bank manager that you are financially sorted!
Save Money By Buying A House?
Often mortgage repayments can work out cheaper than paying rent, and youll have the added security of owning your own property. Given normal economic conditions, the value of your property is likely to rise while you live in it, which means that taking out a mortgage is one of the commonest ways to invest money. Property continues to accrue value while other assets can decrease in worth provided your house is kept in good repair and is structurally sound; you can usually expect to make a profit when you eventually move on.
Being Committed!
That said, taking on a mortgage is still a serious commitment, and not one you should enter into without careful consideration and planning. You need to ensure that you meet your monthly repayments a mortgage is a legally binding agreement, and failure to keep up with your payments could mean you lose your home as well as your investment.
As well as the implications of taking on such a large commitment, you will also find you need to do some hard work finding your mortgage. The complex world of mortgages is enough to bring many of us out in a cold sweat. With so many different options to choose from, and a constantly changing market, its not surprising so many of us find ourselves overwhelmed.
Choosing the Right Mortgage
What to do if the vast array of different types of mortgage makes your head spin and you dont know your APR from your elbow? Start by getting familiar with the basic terms and structures of mortgages. This guide provides a starting point to help familiarise you with some of the more common issues surrounding mortgages. Take your time, do your research, and youll find you can navigate your way through the maze of mortgages.
You may freely reprint this article provided that the author bio and live links are left intact.
Dec 22
adminCheap Mortgages
Canadian mortgages have some quite subtle differences from the UK system so I have no doubt they will be fairly new to most nationalities. Whichever type of home you buy, the chances are you will need a mortgage. There are many different methods of financing a home buying purchase that are unique to Canada:
Assuming a mortgage – This involves taking over the sellers mortgage and negates the need to arrange your own financing. The rate you take on may well be fixed lower than the rates on offer and you should not be required to pay appraisal and other setup costs. In some cases you will not have to qualify for the mortgage either, though this depends on the original terms imposed by the lender. Normally, you will have to buy out the part of the mortgage already paid off by the current lender.
Standard mortgage – Most major banks will lend up to 65% of the appraised value to immigrants before they have permanent employment as part of a welcome to Canada package. This will depend on individual circumstances and obviously will not be available to some people. Once you are working in full time employment, normal rules should apply.
Vendor Take Back – Basically, the seller of the property will lend some or all of the cash required to buy at terms negotiated between you. This is very attractive to buyers who will not normally qualify for a mortgage. The debt may be sold to a third party but the original terms should apply.
With such a major part of your new life on the table it is definitely worth using the services of a Professional Mortgage Broker. That way, all the options for financing will be thoroughly explained, sound advice on the best options for your individual circumstances can be given and access to mortgage funds can be arranged for most people under the most favorable terms.
Under international money laundering laws, ALL mortgage providers will now require proof of origin of any funds used to purchase a property. It is essential that any lawyers closing statements for house sales, money transfer receipts, savings statements and bank records are made available when you apply for a mortgage. Basically ensure you have a verified “paper trail” for your money!
Finally, most Canadian employers will pay every 2 weeks and so it makes sense to pay your mortgage “bi-weekly”. This means you will make 13 payments a year instead of 12 and so will pay the mortgage off faster.
With Canadian home buying , if you have to borrow more than 75% of the appraised value of the home it is considered a high ratio mortgage and Mortgage Loan Insurance will be needed.
Dec 15
adminCheap Mortgages
In the first three months of 2002, just 9% of all new mortgages were taken as interest only – but by the last quarter of 2005, the figure had risen to 23%. And amongst first time buyers, the figures rose from 6% to 15%. (Source: Council of Mortgage Lenders.)
The reason is obvious. It’s down to family economics. With an interest only mortgage, the monthly repayments only repay the ongoing interest so your monthly repayment is low. Repayment of the capital borrowed is delayed to the end of the mortgage when it has to be repaid as a lump sum.
So the popularity of interest only mortgages is a reflection of borrowers wanting to minimise their fixed monthly outgoings in order to preserve their lifestyle they still want their nice cars, nights out and holidays abroad. But their reluctance to cut back on their life style spending, combined with steadily rising house prices, could be storing up problems for the future. If they’re not repaying some of the capital now, how are they going to repay it?
Egged on by the concerns voiced by the Financial Services Authority (FSA), many lenders are now becoming much stricter when assessing an application for an interest only mortgage. They’re insisting that there’s a viable repayment vehicle in place before they’ll payout the money. These repayment vehicles could be the tax-free cash forecast from a pension policy, or an ISA or some other regular investment or savings scheme. The danger is that having got the mortgage, the borrower subsequently cancels their savings scheme.
If that were to happen, when retirement finally arrives accompanied by the looming commitment to repay the mortgage capital, they’ll be faced with having to sell their home and down size simply to free up money to repay the mortgage. And that’s a scenario that lenders and the FSA are anxious to avoid.
Twenty years ago interest only mortgages were the accepted norm with endowment policies being used as the most popular investment to repay the capital. But as we now know, returns on endowment policies have not been as high as many had assumed. This has left thousands of homeowners with a capital repayment shortfall. Endowment policies have certainly failed to be the guaranteed repayment solution that many of us had assumed twenty years ago. So, in today’s economic and investment environment, how certain can you be of any scheme to repay the capital?
When the shortcomings of endowment policies slowly became understood, interest only mortgages fell out of favour and repayment mortgages took over as the norm. But once again the pendulum is swinging. Interest only mortgages are back in a big way. It’s the result of high house prices and people straining to get onto and up the housing ladder without wanting to economise on other areas of their spending.
We’re sure that the pressures within family finances will continue to fuel the demand for interest only mortgages. However, it becomes the duty of mortgage brokers and the lenders to point out the alternatives open to their clients.
In the past, a 25 year mortgage term has been the norm for a young buyer. But now they can stretch the repayment period to 30, even 35 years. This makes the payments on a repayment mortgage far more affordable.
For example, the monthly repayments for a 125,000 repayment mortgage over 25 years at say, 4.9% cost 731.69 per month, but if the repayment period was stretched to 35 years, the repayment drops to 628.16 per month, a cash flow saving of 103.53.
The idea is that as and when family finances permit, borrowers can reduce the capital outstanding by making optional lump sum repayments. In practice, people tend to move house every eight to ten years and at each move a new mortgage has to be organised. These moves then represent an obvious opportunity to reassess long-term family finances.
But other solutions are available. You could arrange a mortgage where part of the loan is on a repayment basis with the balance on interest only. It’s a mid way option. At least these types of mortgage start the repayment process and later when you move home or the family income builds, you can take the opportunity to reassess the most suitable type of mortgage.
But please bear in mind that you shouldn’t speculate when it comes to your home finances. Mortgages are complicated and there is never just one solution. Our advice is take professional advice and use a mortgage broker who can search the entire market.
Dec 08
adminCheap Mortgages
Mortgages. First-Time Buyers Let Down By The Governments Homebuy Scheme.
Late last year, accompanied by the usual razzmatazz, Gordon Brown announced the Governments new Open Market Homebuy mortgage scheme for first-time buyers.
Under the Homebuy scheme, first time buyers take out a mortgage for 75% of a home’s value with no deposit and the Government and the mortgage lender will in practice buy the remaining 25% of the property. Then when the borrower eventually decides to sell the property, the borrower will receive 75% of the net sales proceeds and the remaining 25% of the sale price will go to the Government and the mortgage lender. In the mean time, if the owner wishes to buy out all, or part, of the Governments or mortgage lenders 25% interest, the borrower can simply repay the money the Government and mortgage lender initially put in.- there will be no penalty.
In our view, first time buyers shouldn’t become too excited about this scheme for six reasons: –
The Government has recently confirmed that buyers will have to pay a 1% premium on top of the usual mortgage rate.
There has been no announcement as to the amount relative to income, which borrowers can qualify for. So at this stage it’s impossible to judge what sort of house a first-timer could buy. However, we bet it’s a very small one!
Despite hopes that more mortgage lenders would join the Yorkshire Building Society, the Halifax, and the Nationwide, as co-sponsors of the scheme, no additional lenders have been added to the list.
The Government expects Homebuy to lend to 4,000 first time buyers per year. That’s only fractionally over 1% of the 361,000 first time house purchases arranged each year. In terms of availability, it seems as if Homebuy mortgages are going to challenge hens teeth!
The Government hasn’t even announced the rules under which a first time buyer can qualify to even apply for a Homebuy mortgage.
The scheme is not planned to be operational until October 2006.
So even if you’re happy to pay the 1% premium, your chances don’t look too good for qualifying for an Open Market Homebuy mortgage. Our advice is to forget about them and find a top class mortgage broker to seek out a great deal on the open market.
Signs that our reticence is shared amongst Members of Parliament came from a comment from Michael Grove, shadow housing minister. He is reported as telling the Sunday Telegraph that he wanted to see the Homebuy scheme made easier and cheaper for lenders in order to encourage greater participation from the mortgage providers. We think that’s fine, but participate in what? Until we know who can apply and how much they can borrow, the scheme means nothing.
Dec 01
adminCheap Mortgages
Mortgages. Big Changes In The Buying And Selling Of Houses.
On June 1 st 2007, the law concerning the buying and selling of houses changes. From that date onwards everyone who wants to sell a house has firstly to prepare a Home Information Pack (HIP).
And if you don’t? You’re in the frame for a 200 fine! It’s also probable that estate agents will also insist on you having the Pack ready by the time they put your home on the market. Certainly, buyers’ solicitors won’t do a thing until you provide the Pack. All in all, you don’t have an option you’ll have to go along with the law.
So what has to go in the Pack?
The Government has yet to confirm the final details but at the moment, it proposes that your Pack must include the following information:
Search results from H.M. Land Registry
Replies to anticipated initial enquiries these are the currently raised by the buyer’s solicitor
Copies of any planning, listed building and building regulations consents and approvals. If you don’t have these, you’ll need copies from your Local Planning Authority
And for new properties, copies of building warranties, electrical test certificates, and any other warranties or guarantees attaching to the property.
A draft sale contract
It is also proposed that the Pack should contain two items currently obtained by the buyer:
A professional independent survey of the property called a Home Condition Report. This is expected to be mid-level survey like the current Homebuyer Survey and will offer far more information than a lender’s valuation report but the Government has yet to announce the details. However, it seems likely that the Report will have to comment on the property’s state of repair, it’s energy conservation efficiency, the number and type of rooms and parking arrangements. Both buyers and sellers will have a legal right to rely on this Report and there’ll be no need for buyers to obtain their own reports or surveys.We expect lenders to make their own valuations as they do now, but they’ll want to maximise the use of the new Home Condition Report to improve their valuations and cut costs to consumers.
Replies to searches made of the Local Authority
In addition, if the property is leasehold:
A copy of the lease
The most recent service charge accounts and receipts
Details of the building’s insurance and receipts for the premiums paid.
And finally, any regulations made by the management company or landlord
And how much is all this going to cost? The Government believes that t he Pack is likely to cost sellers around 825 including VAT. But they claim these are not additional costs.
The Government make the following points:
The HIP transfers responsibility for obtaining local searches and a home condition report from the buyer to the seller. But since most sellers are also buyers, the costs will usually be balanced out by corresponding savings and benefits. We agree.
The Government also say that most sellers won’t have to pay up front for the pack. We very much doubt that. Someone is going to have to pay and we doubt whether solicitors or estate agents will pay upfront on behalf of the seller. The seller is going to have to fork out as soon as the property is put up for sale. Some commentators predict that this will act as a brake on properties coming to the market. We think that it will dissuade all but the committed sellers those simply wanting to test the market will probably back off. In practice this will be a good thing, but we agree that it will reduce the amount of property on the market.
The Government believes that market forces will keep down the prices for preparing Home Condition Reports and Home Information Packs. We aren’t so confident about this. It very much depends on how estate agents and solicitors adapt the pricing within their fee structures. Expect some very creative pricing, especially from estate agents! It’s certainly going to pay you to shop around for a good deal.
Every year around 30% of agreed house sales fall through. The cost? At least 350 million each year! It’s the Government’s hope that the Home Information Packs will greatly the numbers falling through and avoid much of these wasted costs. We won’t argue against that but the National Association of Estate Agents disagree with us.
They think the new Packs will simply shift the existing problems from the middle of the selling process to the beginning. Other commentators believe that HIPs will do nothing to reduce gazumping or indeed, the tricks employed by some of the less reputable estate agents.
Our general view is that if the packs help to identify problems before everyone starts incurring cost and instructing solicitors, then surely that’s for the better? We say better to have problems out in the open at the start than stumble upon them half way through the selling process.
We just hope that all these changes in the buying and selling houses don’t result in a bureaucratic nightmare. Over 7,500 inspectors will be needed to carry out the new Home Condition Reports and getting them all trained, qualified and registered in time may yet prove to be that fly in the ointment!
Nov 24
adminCheap Mortgages
Buying a home, like any other big purchase, ought to be done only after one has taken all measures to ensure that they are educated, informed, and prepared. There is nothing more gut wrenching and heart breaking, not to mention just downright depressing, than committing yourself to a six-figure debt only to find out that you didnt actually pick the best kind of debt for yourself. Now, I know that some of you, like me, were taught that debt was a bad thing. Well, that is half true. There are too kinds of debt, responsible and irresponsible. Irresponsible debt will be a topic for a future article but I think it, well, responsible, to talk about responsible debt as it pertains to the purchase of a house. The house purchase is generally considered an all around good idea. The debt is usually considered responsible across the board. There are, however, varying degrees of responsible debt even within the boundaries of the house purchase. Having said that, I would like to take a look at what an interest only mortgage is, whom it is designed for, what the rewards are, and what the long-term implications are.
What is an Interest Only Mortgage?
An interest only mortgage is almost exactly what it sounds like. There is indeed a principle amount that goes along with it and you will indeed be held responsible for the reimbursement of that principle loan. As the layman would say, if you borrow 100 and you only pay the interest for a while, you still eventually have to pay the 100 back. What an interest only mortgage does is allow you to, for a certain period of time, only pay towards the interest of the your loan. It doesnt cut down the principle at all, at least not until the designated period is up (usually 5 years).
Who is the Interest Only Mortgage Designed For?
The interest only mortgage is designed for the homebuyer that is on a tight budget, or the homebuyer that wants to buy something that is out of their price range. I suppose that in both situations the homebuyer cannot afford the house but in one case they dont earn enough to buy anything and in the other, they just want to be able to live outside of their means. But, nonetheless, the interest only mortgage is for both of them. This loan is also designed for people who are fairly certain that their income will be increasing within the next few years because, unlike a fixed rate loan, the payments on an interest only loan do rise.
What Are The Rewards?
There are some really great rewards to an interest only loan. Because you only are paying the interest and none of the principle, the amount of your monthly payment decreases. On an average size of, lets say 200,000, it will save you around 175-200 per month in payments. For someone on a tight budget, that is a big difference. On a 1 million pound loan the savings will approach 1,000 per month. The downside to it is that after the first 5 years (or whatever the term is that you have worked out for the interest only part) your payments will jump up and be higher than they constant payments on a fixed rate loan. It is definitely a nice way to get into something that you cannot afford now but are sure you will be able to afford later. It is also nice for someone who is interested in buying a house and reselling it in a few years for a profit as the money paid into it, the all around total investment, will be less.
What Are The Long Term Implications?
Speaking of the long term is where the interest only loan begins to get scary. Imagine that you take an interest only loan for 100,000 and begin making payments. Because you are paying only the interest the payment would drop from the average fixed rate payment of around 600 per month to 500 or so for the interest only loan. You continue in this manner for five years and then the remaining balance is converted into a fixed rate loan. You still have an outstanding balance of 100,000 but now you only have 25 years to pay it off instead of 30. In the end you will wind up paying 8000 to 10,000 more over a 30-year period. If, however, you do not plan on actually staying in that house for 30 years, the long term implications is not that important.
Conclusion
As I see it, if you are trying to get a house that you want to stay in until you are old enough to leave it to your grandchildren, perhaps the interest only mortgage is not the best option for you. It would be better in the long run to go with something else, something that will not cost so much in interest. But, if you are young, nomadic, or on your way up the corporate ladder, this is definitely something to consider. This type of mortgage will allow you to get into a pricier house, have a little extra money for upgrades, and then sell it in a few years for a large profit when that job promotion forces you to move to another city. It is a great way to save money in the beginning but can be a real gamble if you stick it out for the long haul. And, as always, sit down with a trained professional who knows your situation, your needs, and your desires. They will be the best assets you have when it comes to your assets!
Nov 17
adminCheap Mortgages
Interest Only Mortgages FSA Makes Move To Protect Homeowners
Abbey recently stated that over 25% of homeowners decide to take out an interest-only mortgage. It’s not hard to see why the monthly payments are significantly less, just look at this example based on a 25 year 125,000 mortgage at 5%. The interest only mortgage will cost 525 per month – but the repayment mortgage is 735 per month an additional 210 a month that’s a lot of money!
At the root of the issue are the first time buyers they simply can’t afford the repayment mortgage, so take the interest only option as an easier way out. However, the interest only mortgage must be accompanied by a suitable savings vehicle to cover the outstanding capital at the end of the mortgage term, and it is this that many are failing to do as many as 37% in fact.
Now the Financial Services Authority (FSA) has stepped in, concerned that many homeowners will face a shortfall at the end of their mortgage term. It is now necessary for lenders to see firm evidence from new borrowers that they have set up a savings vehicle to cover the capital. Previously, borrowers just had to state their intention, for example, they would sell the property to raise the capital. However, that will no longer be good enough. The lender will need to see a proper plan set up they are not allowed to set you up on an interest only mortgage without that proof. If they did, they would be going against regulations and would be penalised by the FSA.
The lender will now need to see proof of a personal equity plan (PEP), an Individual Savings Account (ISA), or evidence that 25% tax-free cash from a personal pension plan (PPP) will ultimately cover the outstanding capital. It will no longer be good enough to say that you will set it up you must show that you have already sorted it out!
In the short time that the new regulations have been in force, individual lenders are already making their own interpretations of the rules. The Nationwide Building Society is not allowing borrowers to use a future inheritance, or future pay rises as a basis on which to set up an interest only mortgage. Similarly, expected bonuses will not be good enough either, not unless you can prove that you will definitely be receiving them. Bonuses based on performance can’t be guaranteed, so would not count.
People that already have their own home will not be subjected to the same rigorous checks however. As long as you are borrowing less than two thirds of the new property’s value, and you have 150,000 of net equity in your current home, then Nationwide will accept you as a customer.
On the whole, mortgage advisers will not recommend interest only mortgages, agreeing that they represent too much risk. Repayment mortgages guarantee that all monies owed are paid at the end of the term, but a separate savings vehicle could fail to live up to expectations, and you could end up with a shortfall. Most mortgage advisers will recommend a repayment mortgage to bypass that risk.
On the other hand, the interest only mortgage is a useful short term solution, and if you can assure your mortgage adviser that you intend to switch over to a repayment mortgage as soon as you can afford to, they may well support your decision. Even in this case however, you will still need to provide the same details as if you were intending to stick with it for the full term. You simply won’t be able to get an interest only mortgage without providing the right paperwork.
The best all round solution is to get an interest only mortgage that allows you to overpay. So if you find that you have some extra capital, you can put it onto your mortgage, and reduce the capital. These types of mortgage are widely available, and many allow you to repay 10% or more in a single year. Of course, if you can’t afford it, then you don’t have to at least you have the choice. Just make sure, before signing up, that you can overpay without penalty.
Nov 10
adminCheap Mortgages
Planning for a new home, new property and other finances for the first time is not only a question of gathering money– it is a building a dream to create heaven for you and your loved ones. Though it is a hard fact that getting a mortgage loan is always a question of liability.
Houston based first time home mortgage companies offer easy solutions for those who are mortgaging for the first time.
They welcome first time homebuyers by offering programs to help you first-time homeowners by the home of their dreams. With their help you may qualify for low interest rates and reduced tax rates through the Housing Finance Agency (HFA) and the Mortgage Credit Certificate (MCC) program can help with reduced taxes. There are also low down payment loans available to qualified first time buyers and many more options.
Most Houston mortgage lenders offer first time buyers many loan options and assist the buyer in finding the best loan for them. For The Federal government has developed two loan programs to assist homebuyers that have a little or no down payment. These programs are called the Federal Housing Administration (FHA) and the Veteran’s Administration (VA). These programs are not solely intended for first time buyers, and your loan advisor will be able to determine if you qualify for either program. FHA and VA loans can be especially advantageous when combined with a HFA or MCC first time buyer program.
First time buyer programs are designed to help borrowers who may not have enough money to pay the full cost of the down payment or the closing costs on a mortgage. These programs make obtaining a mortgage more cost effective.
Nov 03
adminCheap Mortgages
Home Improvement Advice: Home Equity Credit Lines Versus Fixed Rate Second Mortgages
Are you thinking about mining the equity for a home improvement loan, but are wondering if you have missed the boat not doing a refinance and cashing out? There are still many home equity loans available that may suit your needs without breaking the bank with payments. “Home-equity loans have been growing at a large clip for years,” notes Wells Fargo spokeswoman Mary Berg. “It’s definitely slowed, but people are still borrowing. They’re finding other products that are more flexible in this rate environment.” Its true that there are many options for consumers these days and home equity loans are available as a credit line with variable interest, as a fixed rate mortgage, and you can even find a second mortgage with interest only payments for a set period.
A home equity line of credit generally has a variable interest rate tied to the prime index, which is published daily in the Wall Street Journal. The rate is dictated by the Federal Reserve. This loan works differently from a standard second mortgage. The HELOC is a revolving line of credit that works like a credit card, but is secured by your home. You are able use the line for as long as the draw period lasts. Although the rates are better than credit cards, there is still a variable interest rate and variable payments. This can be a good loan for home improvements if you plan on paying it off in a short period of time. Some HELOCs have interest-only payments for the first few years as incentive to utilize the product.
If you would rather have a fixed payment to hedge against inflation and the fact that all your bills will continue to increase, a standard second mortgage with a fixed interest rate may work best for you. The payments may be higher than a loan with an interest only payment period, but you can be certain of how much you are paying monthly down the road as well. An adjustable rate mortgage in a market with rising interest rates can be daunting.
Keep in mind with all second mortgages you are borrowing against your house, which means if the payments become too much for you to handle, you will lose your home. If you are smart about utilizing your equity, however, it can be used to your advantage.
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