Posts Tagged ‘mortgage’
Monday, April 19th, 2010
Do you know that you can save tens of thousands of dollars on your home loan by paying the same exact amount on it every month? It is an easy but powerful solution that not many people are aware of.
A two week pay check is the rule for most people. If you are like most people, when you are first paid, you spend a lot because the cash is available, but cash gets tight towards the end of the pay period. Yet, if you look at your expenses, they seem to remain relativelyfairly fixed.
The reason for this phenomena is that we pay the bills and spend additional money e have the the money, and when we don’t, some things don’t get paid. The solution to this problem is to budget your money in general, but budgeting the mortgage payment, the biggest single expense for most people will help with the issue.
This simple trick saves thousands of dollars for most people, and will pay off a home loan more quickly as well. For an $80,000 mortgage that has a 30 year term and a 7% interest rate, this easy trick can save as much as $25,000.
It’s easy: send in half of the loan before it is due, and the other half on the due date. (Most people use the second pay of the month to send the mortgage since it will reach the bank by the first of the month.)
The reason for this is very simple: by paying incremental portions of your loan early, you are lowering the total term of the mortgage. When the mortgage is paid off earlier, the interest total is less.
When you make a payment on your mortgage, the bulk of the funds is used for the interest and only a small part for the principal. While you are paying this small amount of principal, the interest accrues. But if you can speed up the amount of remittances, the principal part that is paid starts to rise faster. This means that your total mortgage will actually be paid up earlier!
Some banks have special forms for this, but even thoughthey don’t, you can just send in the additional payment; just be sure to put down your account number. Another idea is to copy your mortgage payment form and adjust the due date on the additional copy.
As you can observe, without affecting the total impact on your monthly budget, you have found the magic recipe for saving tons of interest and paying your home loan down ahead of time.
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Tags: Finance, home loans, Insurance, mortgage
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Thursday, April 15th, 2010
As interest rates and mortgage conditions change, almost overnight, as it seems, mortgage consumers are constantly questioning whether or not they should re-mortgage.
This is not a simple decision, since there are many factors that dictate the cost of this decision.
How you time your new mortgage can make a big difference, since there are often short spells in the market where interest rates fall briefly, and you can use this to your advantage.
Whether the cost savings are worth it over tiem is what needs to be calculated. What are the circumstances that make this a good decision?
If you are able to transition from a fixed to a variable rate loan, you may save money because you can lock in a rate and not be exposed to the risk of constantly rising interest rates.
Another good reason to think about re-financing is if your credit score has improved and you would be offered better interest rates and terms at this point.
If things in the general economy have changed, you may be able to obtain lower rates by other lenders. A new financing package will allow you to take advantage of this shift in the economic winds.
Whether you want to or not, if you have a balloon mortgage, you may have to refinance every five years, and so it may be to your advantage to use this situation to look around for better terms and rates.
This is a great time to take advantage of either of these benefits, a better credit score to obtain better terms, or lower interest rates to lower your monthly mortgage.
You may want to think about refinancing if you are currently paying sizeable mortgage insurance premiums and are now in a position to eliminate them.
But even after examining all of the good reasons to re-mortgage your home, the biggest challenge is deciding how much it is going to cost now. You need to take the time to calculate your overall savings against the one time fees of re-mortgaging (you can get that number from your lender) and see what the advantage may be.
Quite simply, if you have to pay more in closing costs on a newly re-financed mortgage than you are going to save over the balance of your old mortgage, re-mortgaging your home is not worth your time, trouble and expense.
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Tags: broker, Insurance, investment, lender, mortgage
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Wednesday, April 14th, 2010
If you are retired or approaching retirement, one of the things you may be thinking about is whether you should pay off your mortgage. You may receive funds due to retirement, or you may receive the equity from selling your family home and buying a smaller one.
How do you make this decision, whether to pay off all or part of your mortgage or to invest any monies you may receive?
Each person’s situation is different, and current investment rates and existing mortgage rates will have the most impact upon this decision. Let us say that at your retirement you end up with a $5,000 cash benefit and you need to decide whether to put it towards your mortgage or invest it.
Mortgage calculators available on the internet can tell you how much you have to pay on your home loan, but let us just use an example of a 6.25% mortgage with a balance of $25,000 and five years left. Using your $5,000 to pay some of it off would save you $100 per month, or a total savings over the course of the mortgage of $835.
A CD paying 2.5% would yield $657 over five years, so the benefit here is evident, right? Wrong. If you receive tax savings because of mortgage payments, you would give up any of those savings if you paid down the mortgage.
In addition, you pay income taxes on the $657 earnings that you earne d from the CD interest. Now we have changed our mind and it is not a good idea to pay off a mortgage and invest instead. This is not necessarily the case. What is important to see is that you have to examine the benefits of each situation.
You have to take a lot of other things into consideration, taxes being one of the most important of them. If you are now in such a low income bracket, because of retirement, that tax implications are negligible, you may consider paying the loan off.
Another consideration is that CDs may not pay 2.5%, but rather only 1% or 1 %. This may change your calculation considerably. What should you decide? This analysis clearly teaches us that each situation is different and you have to do all of the calculations for your own situation.
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Tags: Finance, home loans, Insurance, mortgage
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Monday, April 12th, 2010
One of the most confusing aspects for people looking for a home loan is the idea of points, since there are both origination points and discount points.
This second kind of points so-called “discount points” because they lower the rate on your mortgage. That rate is fixed by the lender based on your credit rating, among other factors. What is important to know is whether it is worth paying the extra points to lower the interest rate on the entire loan.
Preferred borrowers, with perfect credit histories, pay a rate known as “par”, the rate the lender expects to make on a mortgage with low risk. Everyone else will get a rate based on the credit rating. If you can lower this rate, which lasts over the life of the mortgage, is it worthwhile to do so by paying points?
In a competitive buyers market, the seller may even consider paying these points since it will bring him a more willing buyer, who will have lower loan payments in the long run.
But if you are paying the points, let’s calculate the savings. If you were given a mortgage at 6% on a $100,000 home, should you pay 2 points to lower it?
On a 30 year mortgage, two points will lower the mortgage to 5.5%. Not significant, but how much difference does that make in the long run? The cost of 2 points on a loan of $100,000 is $2,000. What will be the savings over the life of the loan?
Any loan calculator one can find on the net will calculate your payments. Total interest at 6% is $115,838.19; total payments is $215,838.19; mortgage payments will be $599.55.
Let’s say you choose the option of paying 2 points at a cost of $2,000 to reduce your mortgage rate to 5.5%. Interest: $104,404.04 Total Payments: $204,404.04 Mortgage Payment: $567.79.
Did you save with this choice? Of course! The savings in interest are $11,434.15 and your monthly mortgage payments have been reduced by $31.76! Now you know why borrowers are willing to pay points.
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Tags: broker, Insurance, investment, lender, mortgage
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