Sunday, May 08, 2005

Mortgage and Refinance Articles

Simply send in or have your bank debit your checking account for one half your mortgage payments every two weeks. There should be no extra costs or fees to do this.Or you can reach a similiar result bydividing your monthly payment by twelve and adding that to your payment. In this example that would come out to be an extra $84.44 a month.The secret is that any prepayment, no matter how small will result in saving in interest and a shorter payment period.Bridge LoansBridge loans are used in real estate transactions to cover the down payment on a new home, when the borrower has equity in his old home, but not enough cash.It is generally a short term, interest only loan that is repaid when the homeowner sells his old house.Conventional MortgageMost mortgages are conventional, the terms just vary. A conventional mortgage to most people is a 15 or 30 year fixed rate mortgage with at least 20% down.Construction MortgagesThese are really loans that carry a higher interest rate than a normal mortgage. They allow you to borrow the money to build a house and are converted into a mortgage once the house is finished.FHA (Federal Housing Administration)The FHA is a branch of the Housing and Urban Development (HUD) Department. It is a depression era creation, meant to make it possible for people to buy homes at a time when banks where not granting mortgages.The FHA insures loans up to certain set amounts, which vary with the region of the country and the type of loan. Right now the guarantees run from about $160,000 for a one family house to somewhat over $300,000 for a four family home.This type of mortgage is designed to help low and moderate income people become home owners. It requires low down payments and has flexible lending requirements.If the borrower defaults, the government steps in and pays the guarantee. This makes it easier for lenders to write mortgages they would otherwise refuse.Fixed RateFixed rate mortgages have interest rates set for the term of the mortgage, which canbe anywhere between 5 to 30 years.Although they can be interest only or have a balloon, they usually are conventionally amortized mortgages.At times like now, when rates are low, most homeowners want to lock in the low fixed rates. They are popular when rates are falling, not so popular when they’re high or going up.This type mortgage is a very good idea if you're planning to live in your house for a while.Home Equity Line of CreditA revolving credit line secured by your home. Because it is a mortgage, it carries a lower rate than other forms of credit and is tax deductible.It differs from a second mortgage in that it is not for a fixed term or amount and can be kept in effect as long as you own your home.This is used most frequently for debt consolidation and can be useful if you rip up your credit cards and use the money you save on interest to invest.Interest Only MortgagesThis is just what it says. You only pay interest, the principal is never reduced.This is the grand daddy of all balloon mortgages and you taking a big risk that your house depreciates in value rather than the other way around.You could very well have to come up with extra cash at closing.The payments are much lower than on a normally amortized mortgage and if you have the discipline, it can be a useful financial planning tool.Jumbo MortgagesMortgage loans over $322,700 (the limit is periodically raised). Otherwise, the mortgagecan be fixed or variable, balloon, etc.Rates are usually a little higher than for smaller loans.No Doc or Low Doc MortgagesThis refers to the mortgage application, not to the mortgage itself. Business owners, people living off investments, salesmen and others whose income is variable might use low or limited documentation mortgages.Very wealthy borrowers or those who want substantial financial privacy will sometimes use the no doc option.In either case, in spite of their names some documentation is required. The lender will accept nothing less than excellent credit and even then you will pay more for the privilege.No Money Down MortgagesThese come in two flavors: FHA type loans that allow low or moderate income borrowers to buy a house with little or nothing down and the 80-20 plans, where wealthier borrowers with little money saved up finance 100% of the purchase price.Under the 80-20 plan a first and second mortgage are issued simultaneously. The borrower avoids having to buy mortgage insurance. The two loans are designed to cost less than an 80% loan plus the insurance, otherwise they make no sense.If the borrower puts some money down, you will see the mortgage referred to as 80-10-10 (the last digits will be the percent of down payment) or some similar number.It is mostly used by borrowers who haven’t saved enough for a down payment or by those who have the money, but would rather use it for other purposes.RefinancingThi
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