4 Tips To Negotiate For A Better Loan

Here are some simple tips to help you negotiate a better home loan with the lender.

Get Multiple Quotes (1)

If your lender is unwilling to lower the interest rate you should try and get different quotes from other lenders. The odds are that you’ll find a better offer someone else. Revealing this to your current lender and implying the intent to move to another lender if you cannot find matching interest rates with him might convince them to give you a better deal. 

Serious Intent (2)

If you’re going to ask for a better interest rate actually on your mortgage lender is most likely to ignore such request. However if you stay persistent and convey that you are serious about taking the remortgage offer only if you get a better deal then they may feel more pressurised to consider your request. 

Skilful Communication (3)

When trying to negotiate for a better interest on your remortgage deal, it is important to handle the negotiations skilfully. Keep the communication basic and to the point. Put forward your request an expectation of the interest rate that you want on your mortgage loan and allow the lender to respond to your offer.

Do not talk or explain more than necessary as it is just as easy to talk yourself out of a good deal. Do not communicate what is not required. Inculcate the ability to stick to your point and to listen to what the lender is offering you without conceding to the terms and conditions that are undesirable you. 

Have A Good Credit and Payment History (4)

It is important to be in a position of power when trying to negotiate with a remortgage lender. Having a good credit score and payment history makes you a good lending risk. Mortgage lenders want business from borrowers who are a good lending risk as they represent a stable source of profit for them. Make sure that you have the leverage to call a certain amount of shots by keeping a shining credit rating.

How To Lock An Interest Rate With A Lender For 60 Days

Most lenders will agree to lock the rate and other terms that they quote you for a 30 day period. For a nominal fee or slight interest-rate increase lenders will typically, to hold the rates for 45 to 60 day period. The obvious benefit is that this commitment of rate lock gives you peace of mind. It guards you against inflation in the next few days you take to make up your mind.

What you’re doing is that you’re paying the mortgage lender a certain amount to take on the risk of something happening in the economy that could increase the cost of the loan. Locking a rate on the mortgage is analogous to buying insurance. 

The cost of purchasing a 60-day rate lock is in the range of 1/8 to 1/4 of additional points. On a $200,000 mortgage this could work up to $250-$500.

For peace of mind and when you are getting a good interest rate, it makes sense to block it. Compare it to a situation where the rate increases by .5% by the time you make up your mind. 

Over a 30-year mortgage for $200,000 an increase of .5% means that you would be paying approximately $24,000 more. This is a lot more compared to the initial $250 – $500 fee.

Be sure to get the lender’s written commitment to the rate lock. Verbal assurances should be considered completely worthless.

Home Affordable Modification Program (HAMP) – What You Need To Know

what is the hamp program

What Is the Home Affordable Modification Program (HAMP)? 

The Home Affordable Modification Program (HAMP) is an initiative created by the federal government to help people cope with the collapse of the housing market. Not just because of the problems in the housing industry but also due to the global meltdown of the economy many homeowners began to face problem in meeting their monthly debt obligations. 

Since the payment on a mortgage loan is usually a single biggest payment that a consumer is to pay, this loan is more susceptible to the default. The consequences of defaulting on a home loan are severe for the lender as well as for the homeowner.

Due to reduced income and loss of jobs that many people faced government launched the Home Affordable Modification Program in order to release some of the financial pressure that’s the borrowers were facing. 

The Home Affordable Modification Program (HAMP) is designed to assist people who are facing financial difficulties and are finding it difficult to make the current monthly payments on their mortgage and running the risk of foreclosure.

Eligibility for the Home Affordable Modification Program

In order to be eligible for this Program you must needs the following conditions.

  1. You are a home owner of one to 4 units property. 
  2. Have an unpaid balance on the mortgage. 
  3. Have a first lien mortgage that originated on or before January 1, 2009. 
  4. Have a mortgage payments that is more than 31% of your gross income. 
  5. Have a documented financial hardship to explain why mortgage payments are unaffordable 

If you meet all of this above criteria you can do a check online to confirm whether you are eligible for the Home Affordable Modification Program or not. The online check enables you to see your eligibility as well as tell you the procedure to follow next. You can complete an online application to confirm your eligibility which will require you to keep the details of income and debt handy.

Home Affordable Modification Program (HAMP) – FAQ

Do I qualify for the Home Affordable Modification Program?

The best way to find out if you qualify for the Home Affordable Modification Program is to contact your lender. However the eligibility criteria for this program, in a nutshell, are:

  • You are the owner of a 1 to 4 unit residence.
  • Your unpaid principal balance on the mortgage is no more than $729,750 for one unit, $934,200 for two units, $1,129,250 for three units and $1,403,400 for four units.
  • Your first mortgage was originated on or before January 1, 2009.
  • Your monthly mortgage payment is more than 31% of your monthly gross income.
  • Your financial hardship due to which you cannot afford to make your mortgage payment is documented.

Can you qualify for Home Affordable Modification Program if you are unemployed?

The answer is no. You cannot qualify for the Home Affordable Modification Program if you are unemployed. However, you can be eligible for the Home Affordable Unemployment Program which provides for a reduction or an entire suspension of monthly payments on a mortgage for a certain period of time. 

This reduction or suspension is temporary. If you lose your job while in the middle of the trial period for the HAMP program you can ask to be considered for the Home Affordable Unemployment Program. 

However, if you have already received a prominent loan modification and subsequently become unemployed, you will not be eligible for the Unemployment Program.

Can I qualify for Home Affordable Modification Program if I am already behind on mortgage payments?

The application for the HAMP program needs to be made when you see a foreseeable change in the conditions in the future that might prevent you from making your mortgage payments. This could be a reduction or loss of income in the future or a foreseeable increase in the interest rate of a mortgage loan. 

Such proof of foreseeable financial difficulty should be presented as a documented proof in order to apply for the HAMP program. If you are already late on your mortgage payments then the chances of you being able to apply and qualify for the HAMP program are difficult.

Will the interest rate change during the term in the HAMP program?

Under the HAMP program the interest rate is set at lower than the market rate and is fixed for the first five years of the modified mortgage. This modified interest rate then increases one percentage point every year until it reaches the current market rate at that time. The maximum market rate that the loan can reach is set during the time of the approval of the modified loan program. Your interest rate can never exceed this rate.

What is the cost of the HAMP modification program?

There is no cost associated with applying for ordering qualified for the HAMP program. Now lender has any right to ask you for any sort of a fee in order to qualify you for this program. Asking you for a fee to render such a service is a violation of the federal law. 

Several HUD approved housing counselors will provide this service to you at no cost. Any taxes that you owe will have to be which can also be included in the new modified mortgage payment.

Will the HAMP modification affect my credit?

The HAMP modification should not affect your credit score. As long as you have remained current on your mortgage payments before the modification and continue to make the payments on your modified mortgage while part of the program, your credit rating should not suffer. 

However, the lender will report the loan to the credit bureaus as “modified under federal government plan”. However if you have fallen behind on your payments before getting qualified for the HAMP modification then this will have been reported to the credit bureau by the lender which of course might affect your credit rating as all late credit payments do.

Has You Been Rejected For HAMP? Here’s What To Do Next

Have you been denied a HAMP modification loan? If you are wondering why and what to do next, here are your options.

  1. First of all, view your denial letter. This will shed some light on why your application was denied.
  2. Secondly, get together the pertaining document together carefully. These usually include pay slips for the mortgage, tax returns, bank statements, statements for other debs, income proof and statement and documentation of the financial hardship that you are facing. You will also need to prove that you mortgage payment is more than 31% of your income. Any missing document will result in a denial for the HAMP modification program.
  3. Thirdly, you should consider your alternatives. While HAMP is a federal government initiative and probably stands to provide you with the maximum benefit, there may be other lenders that also offer hardship programs. 

You can first look towards your current lender and see if he is willing to offer any in-house solution. Since it is in the best interest of the lender to see that you continue to make payments on your mortgage, he may be very inclined to help you. Many lenders have adapted hardship programs and offer it to their borrowers who are facing genuine financial difficulties.

Many lenders allow loan modification and whether you seek it from another mortgage lender or find an in-house loan modification program from your current lender, you will be able to modify your loan in any one or all three key aspects of the mortgage loan i.e. Interest Rate, Term and Balance owed.

Home Affordable Refinance Program (HARP) – What You Should Know

what is the harp program

What Is Home Affordable Refinance Program (HARP)

The Home Affordable Refinance Program (HARP) was an initiative launched the federal government in 2009 in the wake of the housing market collapse. This program was launched in order to help people cope with the issue of foreclosure. This program serves to initiate loan modification, refinance and provide foreclosure alternatives to homeowners. 

The Home Affordable Refinance Program also known as HARP in short helps homeowners to restructure their existing mortgage as an alternative to foreclosure. It enables them to lower the interest rate as well is monthly payments. This program is targeted to homeowners who need a financial reprieve from the high mortgage payments were unable to refinance you to their inability to accept a decrease in the value of the home.

Are You Eligible For The Home Affordable Refinance Program (HARP)

In order to be eligible for the home affordable refinance program you must have one to 4 units home, have a loan guarantee by Freddie Mac or Fannie Mae and the current on all mortgage payments. In case you need these requirements in contact your what age lender to get further details and to apply for this program. 

The paperwork and documentation required usually is: 

  1. the pay stubs of your mortgage payments, 
  2. a copy of your income tax return, 
  3. mortgage note and mortgage deed, 
  4. account balances on loans and credit cards, 
  5. second mortgage information, 
  6. insurance information and 
  7. your bank statements.

As it is a federal government process the approval period can be a lengthy even though the application process is simple and quick. The response time for approval can take several months.

FAQ For Home Affordable Refinance Program (HARP) 

Here are some of the frequently asked questions about the Home Affordable Refinance Program.

Will Refinancing through the Home Affordable Refinance Program (HARP) lower the principle balance?

When you refinance your mortgage through The Home Affordable Refinance Program the balance of the mortgage does not decrease. You will still owe the same amount of money to the lender as before. However, it is meant to offer relief to the borrower by lowering the interest rate for increasing the term of the mortgage or both. This means that your monthly payments might refuse but over the entire tenure of the loan you are still be paying back the same principle balance as before and perhaps even more on the cumulative interest.

How Do I Find out If My Mortgage Is Owned or Guaranteed by Fannie Mae Freddie Mac?

The easiest way to find out if your mortgage is owned by Freddie Mac or Fannie Mae you should simply ask your lender. They will be able to inform you if your loan has been guaranteed or backed up by either of these financial institutions. You may also contact Freddie Mac or Fannie Mae directly using a toll-free hotline number. Providing them with your loan identification number will enable them to access your account in their database and tell you whether they are handling your loan or not.

Can I qualify for the Home Affordable Refinance Program (HARP) if the current value of my house is less than what I owe on the mortgage?

The rules of the Home Affordable Refinance Program state that the amount you refinance has to be not more than 125% of your current value. Usually the process of appraising the value of the home happens once you apply for this program.

Can I Get Cash out with Home Affordable Refinance Program (HARP)?

The Home Affordable Refinance Program is meant to offer relief to people who can no longer afford to make payments on their mortgage and are facing the risk of foreclosure on their homes. It is the federal incentive to offer assistance to such borrowers. Cash out is a feature that allows you to borrow extra money by refinancing through the increased equity in the home for other expenses. Cash out is not possible with the Home Affordable Refinance Program.

Can I benefit from the Home Affordable Refinance Program (HARP)?

In order to get an estimate of what the benefit will be in your particular case of refinancing through this program you can ask your lender for a good fit estimate. You can also do a calculation yourself using one of the many online free mortgage calculators. You should appreciate the fact that while refinancing through this program will lower your monthly payments it might increase the cumulative interest at you’re a on your entire mortgage if the term of the mortgage happens to increase.

Fixed Rate Mortgage – All You Need To Know

all you need to know about the fixed rate mortgage

What Is A Fixed-Rate Mortgage

A fixed rate mortgage is a home loan with a fixed interest rate and a fixed mortgage payment every month for the duration of the loan that is typically 10 to 30 years.

A fixed rate mortgage is the commonest kind of a home loan.

In a fixed-rate mortgage the lender allows the consumer to lock in a certain rate of interest for a certain duration. The longer that you want to lock in the current rate of interest the more you will probably need to pay in terms of certain charges. This is for the privilege of having a steady interest rate which is not affected by volatile market conditions.

For example someone who chooses to lock in the current interest rate for five years may have to play certain pre-bid charges while someone who chooses to block in the interest rate for a period of six months might not have to.

For a person who chooses a lock in period of five years will have his mortgage and interest-rate adjusted after five years whereas someone who chooses six months as the duration of the fixed-rate will have it adjusted after six months.

The benefit of a fixed rate mortgage is that it offers the benefit of a variable rate mortgage along with a certain predictability and steadiness in controlling the monthly payments on a mortgage. The important part is that your lender should allow you to vary the period for which you want your interest rate to be locked in.

For example, even if you are opting for a six-month of fixed interest rate period, if you anticipate a sharp rise in the interest-rate in the future lender should allow you to lock in the current interest rate for a period of next five or 10 years without charging you an extra penalty fee.

If the rates really go down in the future and you feel that you paying much more than you ought to, you can refinance your home loan. However, the saving should be worth the cost and fee of refinancing the loan.

Should You Choose a Fixed Rate Mortgage?

You should discuss your particular situation with a helpful lender.

Generally, you’ll find that fixed rate mortgages are the right choice if:

  • You think interest rates are low.
  • You can afford the payment for the house you want.
  • You need to budget for and predict monthly payments.
  • You will keep your home for a relatively long period of time.

Fixed mortgages usually come at a higher price than other kinds of mortgages. For example, the initial offer rate on an adjustable rate mortgage is often very low and attractive.

However, there will always be an increase once the promotional period is over. And then there is always the possibility of future fluctuations as per the fluctuations in the index rate. Learn everything about ARM’s in this post.

Advantage of Choosing A Fixed Rate Mortgage

  1. A fixed rate mortgage offers security to the borrower as the payment remains constant about the tenure of the mortgage. Fluctuations in the interest rate in the economy does not affect the borrower. He continues to enjoy the same interest rate that he signed up for in the mortgage contract.
     
  2. If the interest rate in the economy increases the borrower continues to pay the low interest rate and if the interest rate decreases the borrower may have the option of refinancing the mortgage into a low rate.
     
  3. Most of the fixed-rate mortgages allow the borrower to make lump-sum payments directly towards the principle of the loan. This allows the borrower to pay off the mortgage quicker and save on the interest payable.

Effect Of Making Frequent Or Lump Sum Payments

The borrower can choose to make the lump-sum payment according to the terms and conditions decided with the home loan lender. Additional lump-sum payments or additional by monthly payments are not compulsory and are usually a matter of choice on the behalf of the borrower, and whether the loan contracts allows it.

You should always try to have a prepayment and lump sum payment clause in your mortgage loan. It’s good to have that option. Read the two short scenarios below to see what a dramatic effect a simple change in your payments can have on your home loan savings. 

  • Paying half the monthly mortgage payment every two weeks will pay off a 30 year fixed rate mortgage in about 22 years.
     
  • One extra payment per year will reduce the amortisation period of a 30 year mortgage to 26 years. 

The biggest advantage of a fixed rate mortgage is that you can plan paying for it well in advance. You can budget and organize your fans is in such a way so as to have a complete comfortable there is in keeping with the payments in the future. This is because you know exactly how much you’re going to pay for it in the future as well

There are a few disadvantages of a fixed-rate mortgage as well.

  • You cannot take advantage of a falling interest rate in the future in without refinancing. Refinancing takes time and costs money.
  • Fixed-rate mortgages are not assumable. If you want to sell while still paying off the home loan, the buyer has to get his own financing. However, it is not easy to find an assumable ARMs as well. 
  • If your fixed rate mortgage comes with a prepayment penalty, you might find it very expensive to pay it off sooner.

Tips For A Good Home Loan Experience 

Just because a fixed rata mortgage is predictable in terms of payment schedule, doesn’t mean that the offers do not vary from one lender to another. As always shop around a bit to find the arrangement that suits you the best. These are a few tips to ensure that you have a smooth experience with your loan during the inception of the contract as well as later.

Contact information.

Always have the phone number you can call in case there are any questions or problems in the future. This number should not be just a call center number for a large institution. It should be the number of the person you ultimately interview for a direct phone number, fax number and e-mail address.

Details of the person you deal with

In most cases you’ll be dealing with a loan officer from the lending institution. This is the person that you should be able to call and check up with regarding the progress of your loan.

Loan processor

A loan processor is the person who handles all the paperwork concerned with the loan from the time that you submit your application to the time the loan is closed. Loan processor’s jobs includes conducting credit investigation and preparing loan documents. If possible get the loan processor’s direct phone number, fax number and e-mail address.

Dates

If any problem arises in the future dates could prove important.

Loan program name

If the mortgage lender has a particular name for the mortgage they are qualifying you for, you should have that name. It makes for easier reference.

Interest rate

What is the interest rate that the lender is quoting along with the annual percentage rate?

Points

What is the number of points that are being charged for a particular interest rate. A quote of an interest rate without a quote of points is quite meaningless.

Fees

Ask the lender to identify and itemize all lists of fees and charges that are applicable to your loan application such as processing fee, credit report, appraisal fee and others.

Required down payment

In most cases you’ll be required to make at least 20% to avoid taking the private mortgage insurance. However, if you’re agreeable to taking private mortgage insurance you can have a downpayment as less as 5 to 10%. However, this is rare with regular mortgage lenders.

To find lower down payments limits, one can usually do better with an FHA mortgage.

Loan amount allowed

Getting a certain interest rate and other favourable terms and conditions is no good if you are not being lent to amount your need. Ask the lender how much amount he is willing to give.

Prepayment Penalties

We strongly urge you to avoid a prepayment penalty clause in your contract. Ask a mortgage lender if there is any prepayment penalty clause in your home loan contract. The lender is bound to reveal this in the “truth in lending disclosure” form that is handed over to the borrower.

Is The Loan Assumable?

Finding an assumable home loan is quite difficult in today’s date. All VA loans are assumable. With an assumable loan, the borrower can pass off the mortgage to the person when he sells his house. The mortgage continues on the same terms that were applicable for the first home owner.

Estimated monthly payment

How much are you going to pay each month for a mortgage?

5 Steps To Improve Credit Score Before A Home Loan

how to improve credit score before a loan

Importance Of A Credit Rating For A Home Loan

Your credit score, in other words, all the stuff that is on your credit report has a direct impact on your home loan application. It is the first document and factor that a mortgage lender looks at to assess your eligibility.

Different lenders have different underwriting guidelines. Most of the lenders look at several of the pieces of financial information of the potential borrower, such as employment history, income and job stability. 

It is possible that a lender may qualify you for a loan even though your credit score is on the low side.However, having a good credit score ensures you get approved with the best terms and conditions.

How To Improving Your Credit Score

So, what do you know about your credit score? Have you pulled your credit report and score did before the lender does? If you haven’t you should.

Checking and correcting your credit report is a way to improve your credit score. You should not leave this still too late. Do it at least six months prior to applying for the home loan. This gives you ample time to set records straight and for the results to show in the form of an improved credit rating.

If your credit score is good, that is, in the upper ends of 700, then you don’t have to bother. But if it is not, depending on how low it is, you are going to suffer for it by getting a higher interest rate, finding it difficult to find a lender who approves your application or even facing an outright denial for a loan.

Find Out Your Credit Score

So first thing, check your credit score. There are many sources for doing this but the best way is to go to myfico.com and buy it from there.

Fico credit score is the most common score used by most of the lenders.

Get Your Credit Reports

Next, pull your credit report from the three credit bureaus, TransUnion.com, Experian.com and  Equifax.com. You may be able to get all three credit reports from the website of a single credit bureau.

You are eligible for a free credit report from all the three main credit bureaus every 12 months. So if you haven’t already, go to www.annualcreditreport.com and get yours for free.

Examine your credit score

One of the good features of ordering your credit score is that it comes with a complete summary of the factors that are affecting it negatively. So if it’s late payments, unpaid debts, lack of depth you will know what it is.

A credit score is calculated according to a certain formula. While the exact formula is not known, it has been revealed that the following factors are used with a varying degree of importance.

  • Payment history – 35%, 
  • Balance – 30%, 
  • Length of credit – 15%, 
  • Enquiries – 10%, 
  • Types of credit – 10%.

It should be mentioned that a credit score takes into consideration when the consumer is shopping for the best possible loan option. He may apply for credit with various mortgage lenders resulting in multiple inquiries coming on the credit report. The credit score understands this. Which is why multiple inquiries made for the same kind of credit within a period of 14 days are treated as one.

Now that you know what affects your credit score, it’s time to start working on your accounts.

There are two important ways to improve your credit rating:  Bring unpaid and delinquent accounts in order and, by attempting to dispute other negative items from your report in an effort to having them erased from record.

Dispute items on our credit report.

  1. There may be various negative entries which might be removed from your credit report by the procedure of disputing. 
  2. Incorrect information such as a debt that has been paid off but is still getting reported as unpaid can be disputed. 
  3. Other entries can be removed by putting the burden of proof on the creditor.
  4. When you order a credit report you are also allowed to file a dispute either online or through postal mail. Filing a dispute online is as simple as logging in with the credentials provided to you.

For every dispute filed, the creditor is supposed to get back to the credit bureau within 30 days. If he doesn’t the entry has to be removed from the report. You can try this with the very old debts as the creditor is less likely to have  maintained the necessary paperwork to prove the debt. This is also the way to go for debts that you believe are not yours.

However, for the debts you own, the better approach is to settle them, if you can’t pay them back in full. 

The icing on the cake will be if somehow you can convince the creditor to report the debt as fully paid to the credit bureau. That will have a better impact on your credit rating than settled debts.

Basically, try to set as many factors right as possible.

It is generally believed and is commonly true that when people have a bad credit score, they are likely to be suffering from other money problems. 

For example if someone is late with credit card payments repeatedly, it cannot simply a case of forgetfulness each and every time. Similarly if one revolves a high amount of money on credit lines, it’s likely that the person is living beyond their means and is always a high-risk for default.

What we are trying to say is that improving your credit score is not about a quick fix. It is about fixing long-term issues and habits that are causing you to be in a bad credit situation.

You know the things that affect your credit score now. Therefore:

  • Get regular with payments.
  • Reduce the balance on your credit cards
  • Charge your credit cards, less than 50% of the credit limit.
  • Cancel additional credit cards you don’t use.
  • Don’t apply for too many lines of credit.
  • Maintain good transaction history for sometime if you have started using credit recently

With time, your credit rating will improve and you will be able to get better terms with your mortgage lender. Consider reading a good book, researching online and credit counselling if you feel your credit situation is out of control.

7 Insurance Policies To Safeguard Your Mortgage Payments

insurance for your home

how to insure your mortgage payments

You need proper insurance protection to protect yourself personally, your family as well as assets. Unfortunate instances in life have a way of happening without warning. While we hope that this will not happen to you, the only way to protect yourself and your family from getting into major financial trouble after purchasing a home is to obtain proper insurance cover.

Having the right kind of insurance can make the difference between keeping and losing your home as well as helping your family maintain a standard of living.

Wanting to skip insuring is tempting and a natural human tendency. After all it costs hard-earned after-tax dollars and has no upfront tangible benefit. However, while we hope that you won’t need it, if you need it you will be glad it’s there to protect you and your family’s interest.

These are 7 different kinds of insurance you can use to insure the payments on your mortgage.

Household Insurance

Household insurance is also known as buildings and contents insurance.  This insurance policy ensures the building and your possessions against damage in the future.  A mortgage lender will try and get you to take their own policy which may or may not be a bad deal.  As with the original mortgage loan do some research to know if your lender is giving you the best deal on the insurance policy as this as well could say the thousands of dollars in the future.

Lenders offer you insurance from their own companies as it means extra profit for them.  It may or may not necessarily be the best deal around but a majority of the consumers choose to go with the lenders in order to avoid the extra hassle.

In view of any damage that might happen to property in the future you should know that the cost of rebuilding and redecorating your home is not the same as the original cost of the house.  It is usually much less as for one thing it does not include the cost of the land.  However it is crucial for you to get this figure right as underestimating will mean that you are left with a lesser amount of money that you actually need to rebuild your home.

You may also get an independent evaluation done. Be sure to do a realistic evaluation of all the property that is there each room.  Some lenders offer a blanket cover package which is based on the number of rooms you have.  You may either paying up more than what is necessary or getting under insured.  It is more likely that the lender will charge you more than what you need to pay when it comes to a blanket cover package.

Life Insurance

The only reason why one considers a life insurance is to provide for the family.  All life insurance plans have the same idea of providing your descendants with the insured sum of money in the event of your death.

People also consider taking a life insurance when they have taken out a reverse mortgage on their home so that the next of kin can use that money to pay off the lender and be able to keep the home.

You should consider the fact that getting a life insurance gets more expensive with age.  Another option to life insurance policy is a level term assurance which does not charge you a large premium as get older. You should take the advice of a financial professional in order to decide between the pros and cons of the two, since the amount of money that your beneficiaries receive is dependent upon the inflation in the economy.

Mortgage Protection Decreasing Term Assurance

This mortgage insurance is somewhat like a life insurance but is specifically taken for the purpose of paying off the mortgage on the event of the death of the householder.  Since the amount you owe on your mortgage decreases with time as you continue to make payments, so does the amount that your beneficiaries will receive on the event of your death.

Permanent Health Insurance

This kind of mortgage insurance provides you with a partial amount of your income should you get ill and are unable to work.  This kind of insurance generally pays you regardless of the nature of your illness as long as you are prevented from doing your job due to the sickness.  

Although you are covered up to a certain extent by the state they are by far not enough to meet the expenses along with the mortgage loan.  Health insurance is usually available for the person and the person family through the company that they work for. You can expect to get 50% to 60% of your income from a permanent health insurance payout and it does not take inflation into account.

You do need to be careful while signing a permanent health insurance contract with the company as to what constitutes their idea of being unable to work.  Watch out for phrases like’ own or any occupation’.

This would imply that even though you have lost your job due to illness, you can still work on your own or in a simpler occupation.  

This is an extremely misleading condition in the contract as except in very dire cases a person can almost always do something to make some money. 

You need to ensure that the insurer insures you for an income based on your current stature of income and employment corresponding with your level of education and experience. There should also not be a clause for premium increases in the future as you get older.

Mortgage Payment Protection Insurance

This is the kind of insurance that allows you to keep meeting your monthly mortgage payments in case of loss of job or disability.  Till some time back people who were unable to pay the mortgage due to the loss of job or disability used to get assistance from the state.

This changed 1st October 1995 when anyone who has remortgaged after that date is only eligible for state assistance nine months after becoming unemployed or disabled.  Even then the person would have to prove that he does not have the means to meet the mortgage payments. The assistance from state will only cover the interest payments and not the capital amount.  If the mortgage is for more than $100,000 you don’t get any assistance at all.

What a mortgage payment protection insurance does is cover you for this kind of an eventuality.

The cost of this kind of insurance would depend on the current economy condition but usually ranges from $4.5 to seven dollars a month for every hundred dollars of monthly payments for a twelve month cover. The payments usually start 30 to 60 days after the date of signing the contract.

Mortgage Indemnity Insurance

This is a rather murky area as far as insurance goes.  Many legitimate lenders have dropped this kind of insurance while some still charge it.  Some don’t charge it altogether but may be hiding the cost of it in another fee.

Mortgage indemnity insurance only protects lender and does nothing for you. If you cannot meet your future mortgage payments and your house is repossessed and sold for a value that is less than what is owed, the lender is assured for amount that would otherwise have been a loss.

The reason why many mortgage lenders are dropping this is because it seems unprincipled at times because even though the lender has been reimbursed for the short sell, he can try and recover that debt from you in the future with interest.

Lenders who do charge this fee, usually set a threshold. For example, a lender may only require you to pay for this insurance if you are borrowing more than 80% of the home price. In such cases, you can choose to borrow just under the threshold limit.

Critical Illness Insurance

The critical illness insurance gives you a lump sum of money should you contract any of the critical illness you are insured against.  You get the money as a one-time payment and you can do whatever you like with it.  In most of the circumstances a permanent health insurance makes more sense than a critical illness insurance.

 

Reverse Mortgage – All You Need To Know

learn about reverse mortgage

What Is A Reverse Mortgage

A reverse mortgage, also called Home Equity Conversion Mortgage (HECM), is available to homeowners who are at least 62 years of age or are within three months of their 62nd birthday.

The owner can use the equity in his home to get money from a lender. In a reverse mortgage, the lender pays the home owner and borrower does not have to pay anything back.

The money is recovered by the lender by the sale of the home when the lender moves out or his demise occurs.

A reverse mortgage in the US is governed by the US Department of Housing and Urban Development.

Who Can Qualify For A Reverse Mortgage

In order to qualify for a reverse mortgage:

  1. You must be in 62 years of age or more or be within three months of your 62nd birthday.
  2. You must either have a free hold on your home or have a low mortgage balance remaining that can be paid off easily with the reverse.
  3. There must be built up equity in your home which is sufficient to justify a reverse mortgage.
  4. You must live in your home which can be a single family home or a 1 to 4 unit home as long as at least one unit is occupied by the borrower. HUD approved condominiums and Manufacturing homes that meet FHA requirements are also eligible.
  5. You must receive compulsory counseling from an approved HECM ( Home Equity Conversion Mortgage) counselor before signing on the contract. You can contact the housing counseling at (800) 569 42874 and get contact names and numbers of HUD approved counseling agencies and a list of FHA approved reverse mortgage lenders in your area.

In spite of off a list of approved councilors being available you must ensure that you are given complete information because the counselling is not always upto the mark.

everything about reverse mortage

How Is The Money Received

A new loan is taken out by the mortgage lender for an amount depending upon the value of the home. Any existing mortgage on the home is paid off and any necessary repairs on the house are executed.

The remainder of the money is given to the borrower either as a lump sum payment, as regular monthly payments or as a line of credit or as a combination of any of the above three methods.

The remittance of the reverse mortgage to the borrower can be made is one of many ways:

  1. Through a one time lump sum payment.
  2. Through a Line Of Credit that allows the borrower to borrow from an account as per his needs till the credit limit is exhausted.
  3. Tenure – Regular monthly payments to the borrower till the time that the mortgage contract is in force that usually ends with either the borrower moving out of the home or his demise.
  4. Term – Regular monthly payments to the borrower for a fixed period of time.
  5. Modified Tenure – A combination of Line of Credit as well as fixed monthly payments till the termination of the mortgage contract.
  6. Modified Term – A combination of line of credit and fixed monthly payment for a fixed period of time.

How Much Can You Borrow

The amounts that a person can borrow on a reverse mortgages calculated based upon several factors such as:

  • the area of residence
  • existing loans and liens
  • age of the youngest borrower
  • as well as the value of the home.
  • in some circumstances federal housing administration will limit the amount to be borrowed according to its guidelines.

Also, before the amount to be financed can be calculated, the house will be evaluated and expenses for necessary repairs will be deducted, if required.

A majority of reverse mortgage loans work on an adjustable rate mortgage where the interest rate is adjusted either monthly or annually.

You need compulsory counselling before you can sign up for a reverse mortgage contract.

You can obtain local lists of counsellors approved by the US Department of Housing and Urban Development by calling 1-800-569-4287.

The Department of Housing and Urban Development (HUD)

American Association of Retired Persons (AARP®) National Reverse Mortgage Lenders Association (NRMLA) National Council on Aging

How Is The Money Paid Back

You only have to pay the money back in case you move out of the house or decide to sell the house. In case of your demise, the lender will use the proceeds from the sale of the property to recover his lending.

Whatever is in excess after the payment will pass on to your heirs.

The mortgage lender is not allowed to go after the heirs and their assets or their inheritance if he cannot recover the money of the reverse mortgage from the sale of the home.

Since the reverse mortgage is backed by HUD, HUD covers the difference if a short sale occurs and the mortgage lender is not allowed to go after the heirs and their inheritance for the recovery of his debt.

Many times the next of kin of the home owner take out a life insurance policy. In the event of the owner’s demise the benefit received from the insurance policy is used to pay back the money taken from the lender as reverse mortgage.

This way parents can ensure that their children still get to inherit their home in spite of the money taken against a reverse mortgage.

What Is The Difference Between Reverse Mortgage and Home Equity Loan

The major difference between the two is that with a reverse mortgage you do not have to  make any payments back to the lender, apart from some insurance or maintenance fee. You only pay the lender if you move or sell the house. In case of your demise the money owed is recovered from the estate, unless you next of kin pays it off.

A home equity loan or a second mortgage requires you to make monthly payments for the sum borrowed. So while you get a lump sum, and you have to start returning it immediately.

People imagine that they will invest the amount they get from the 2nd mortgage and pay off the instalments with the interest they earn. Two things usually go wrong with this idea. First, you will find it difficult to earn more interest on your investment than the mortgage rate of interest. Secondly, you are probably taking a 2nd mortgage because you need money for some expense, perhaps even a major expense like a marriage or child’s college education.

This dwindles the amount you borrow and there might very little left to invest.

With reverse mortgages you can choose to get paid in several different formats and do not really have to worry about spending it for any important expense.

Cost Of Taking A Reverse Mortgage

HECM Costs: You can always finance the costs of the reverse mortgage/HECM. The costs of the loan are rolled up in to the mortgage and the borrower does not have to pay anything. However, the financing the costs of the reverse mortgage reduces the amount that you are eligible for from the HECM.

The HECM loan includes several fees, including an origination fee, closing costs, mortgage insurance premium, interest and servicing fees.

Service Charges: A mortgage lender provides services through the tenure of the reverse mortgage. A monthly fee may be charged by the lender for the purpose of distributing the payments and keeping the mortgage in compliance through home maintenance, insurance and tax payment. HECM lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate and $35 if the interest rate adjusts monthly.

Upfront Mortgage Fee: There is a cost that is specific to reverse mortgages. Its called upfront mortgage fee. This fee is calculated at the rate of 30 or $35 a month for the projected lifespan of the youngest borrower.

7 Reasons To Rent And Not Buy A Home Just Yet

why rent and not buy

These are 7 very convincing reasons why you should continue to rent a home and not buy one, at least just yet.

If You Expect To Move

If you expect to be re-located in the near future, you should be especially careful about buying a home. People move for many reasons which do not always have to do with their jobs.

Unless you’re planning to hold on to the property that you buy or convert it into a rental when you move, buying a home does not make sense because you will have to incur further costs in selling a home and buying a new one which will mean that your current property should have appreciated at least 15 to 20% in order to cover those costs.

Consider buying a property only if you intend to hold it for 3 and preferably 5 years.

If you are lucky and you are situated in a time and place where the property prices sky rocket then you could well make a profit if you sell after 5 years. This is fairly common in developing areas, cities and economies.

Pressure Of Sales Pitches

When you purchase your home, it will be you who will live in it and face the expenses. Do not purchase home under pressure from pushy salespeople or advice of other homeowners. Do it only when it makes complete financial sense to you.

You should understand that many people involved in the home buying transactions have a vested interest in convincing you to buy.

People like real estate agents, mortgage lenders whose livelihood depends on this business and people like you are purchasing homes, might give you the wrong idea about why you need to purchase a home.

What a mortgage lender is willing to lend you and tells you you can qualify for might be very different from what you can actually afford.

Incorrect Logistics

When you purchase a home, you’re also buying into the community, the neighborhood, the commute to your job and all its amenities. See if all the logistics work out for you. While a drive for an of the office may not seem significant as compared to owning a home in a nice locality and at a good price, it may soon get to be tiresome and may make you tire of your commute, your job and your new home. Take your time and consider all important factors that are going to affect your life by purchasing the home.

Need To Borrow More Than You Can Afford

Spending more than you can afford when buying a home can be a very costly mistake indeed. Many people over estimate the amount they can afford because they have been renting at a lower cost and spending money on comfort and leisure activities.

When it comes to purchasing a home they usually borrow to the maximum limit and overextend themselves. Many people also believe that sum of money that the mortgage lender is willing to qualify them for is the amount that they can afford to borrow. This is not always true,

Rent not buy

Borrowing Less

Just like you can overspend and overextend yourself when buying a home, many people can also make the mistake of borrowing much less than what they can afford.

Take the example of someone who borrowed less than half of what they could actually afford to pay on a mortgage and purchased a home knowing well that they will need to move into a bigger place soon into the future. Having to relocate and purchase another property soon eats up into the equity of your current property. Selling and buying a home both cost money.

By the time you have paid for the costs of selling your house and purchasing a new one, you have probably lost all the equity that you built up in your home and maybe even your down payment.

It is said that you need at at least 3 and preferably 5 years just to recover that you are going to have to spend in selling and buying a new home.

Peer Pressure

Do not buy a home simply because it seems like the mature thing to do.

You might feel a lot of peer pressure to purchase home if your siblings, coworkers and your friends are all homeowners. Buying a home reflects on the financial security and success of a person. All said and done, it is a major milestone in a person’s life. However, you should realize that everybody has different needs and not everyone should own a home and certainly not at every point in their adult lives.

A study even supports the notion that the life of a typical renter is in some ways better than that of the average homeowner. Here are some of the results of the survey conducted with thousands of people.

  • Homeowners are less social on average than renters and spend less time with friends, neighbours and coworkers.
  • Homeowners spend more time on household chores.
  • Perhaps for the above reasons, renters have more sex and less marital discord and cope better with parenting that homeowners do.

Fear Of Escalating Prices

It is a common fear and maybe even justifiable that the escalating home prices will make it impossible for you to buy a home in the future if you do not buy one today.

Escalating house prices scare many renters and make them feel like they should purchase a home as soon as possible. News of booming housing prices make front page news and are often boasted about by existing homeowners.

The truth is that never in the history of real estate business have the prices become so high as to price number of people out of the market.

In fact if the home prices or on a peak now, you can be rewarded by being patient and wait till the market prices stabilize or even decline.

It is extremely important to understand that while you might not be completely locked out of the housing market by escalating prices, the price of homes are likely to increase faster than the rate of inflation. This means that you will be able to buy less home for your money in the future then you could today.

Not Knowing What You Can Afford

When it comes to purchasing the home you need to consider and examine your overall financial situation and goals. People usually have many financial needs and requirements that they want to fulfill such as saving for retirement, paying for children’s college education etc. which need to be figured in the decision of purchasing a home.

Don’t expect your house agent or mortgage broker to bring this issue to your attention. They might be motivated by their own vested interests or are simply not trained to look at this aspect accurately.

Evaluate your finances carefully before you make the decision to buy a home.

8 Reasons You Should Buy And Not Rent A Home

why buy and not rent a home

Don’t Rent Because It Seems Cheaper

Should you rent a home instead of buying simple because paying the rent seems so much cheaper compared to the cost of home?

It could be making a common mistake renting a home instead of buying one simply because renting seems cheaper. 

When you go out today to look at the prices of homes, you are likely to find it in the range of several hundreds of thousands of dollars. Your rent may seem insignificant compared to this cost. However, you must stop to consider your monthly renting expenses to your monthly cost of owning a home.

Typically speaking, you save money in the long run by buying a home rather than renting a comparable home today. One of the reasons is that all the costs associated with renting home are affected by inflation.

At a modest inflation rate of 5%, you rent will more than double in the next 20 years.

The prices of real estate are rising and not in tandem with the increase in income for most people. You will be able to buy ‘less’ home for the same money in the future than you could today.

In some areas the prices of homes are rising so fast that it makes sense to purchase a home as soon as you can.

To compare your rent to a mortgage loan, for the same monthly payment, you can typically afford a home loan that is 200 times the rent.

So, for example, if you are paying $1000 per month as rent, you can afford to take a home loan of 200 * $1000 = $200,000. You will still be paying the same amount every month.

Not only will he or prices become unaffordable in the near future because your income will not keep pace with the rising real estate prices but you also stand to make an extremely good return on this investment.

If the value of your home grows fast, your home is going to be an extremely valuable financial asset as well as financial security. You should understand that your decision to rent versus buy a home will affect your housing cost, not just this year but also for many years and decades to come.

Buy not rent

Not Buying A Home Because of Job Insecurity

The biggest chief executives of companies, athletes and even movie stars are insecure about their jobs. Being insecure about your job is quite natural. Job loss fears can easily make you insecure about buying a home if you take on the obligation of paying of a monthly mortgage.

  • The truth however is that a majority of people should not worry about job loss when it comes to buying a home.

This does not mean that you will not lose your job but within a reasonable time giving your skills and abilities you are likely to find another job and be able climb back on your feet in a comparable career position.

  • The current economic scenario might make people even more insecure about their jobs and financial stability in the future. But if you start working towards it today by saving money and not living beyond your means, purchasing a home should not be as much a problem as you might make it out to be.

Many people who had to face foreclosure when the real estate boom ended, had to do with people purchasing beyond their means and spending more than they earned. Living on credit has always been dangerous and if you want to figure in the factor of purchasing a home in the near future, you need to start planning for it.

  • The key here is to save. You need a cushion of 6 months of expenses at least, so that even if your job is gone, you have plenty of time to stay afloat, keep making your mortgage payment, and get a new job.
  • However, if you think losing a job is a high likelihood and especially if you need to relocate for a new job, you should consider postponing the decision to purchase a home until your employment situation stabilises.

Cannot Find The Right Home

Are you renting because you cannot seem to find your perfect home? Yes, its true that it takes time to find the home you want. But please ensure that you expectations are realistic. If you cannot find find the right house because the ones that you want are always too expensive, you may need to revaluate your requirements.

Look harder. It takes time and perseverance to find a home you want. So make sure you are really looking.

Mostly everybody buys a home at some point or the other. However, not at every stage and at any given point of time in their lives.

Less Than Paying Rent

The main advantage of the home ownership should be that it should be less expensive than renting. Many people do not stop to consider this but there is a simple calculation that you can use to compare the amount of rent that you are paying and and the amount of home that you can purchase with the same monthly expense.

The simplest way to calculate this is to multiply your monthly home rent by 200. The figure that you come to is the value of the home that you can afford to purchase by paying the same amount as your monthly rent as your monthly mortgage installment. Your monthly rent might seem extremely cheap as compared to the price of purchasing a home. But once you do this simple calculation, it might not seem so cheap anymore.

For example, let us say that you are paying monthly rent of $1000. When you multiply $1000 with 200 you get the amount of $200,000. So typically, you can afford to purchase a home for $200,000 instead of paying a rent of $1000 per month.

Do not forget the fact that when you own the home, even if the mortgage payment is higher than renting, the payment is going towards making you the owner of a great financial asset that will appreciate in value over the years. The built up equity in the house can be a valuable source of money when you need it for important purpose or make you life after retirement all that more comfortable.

Beat Rising Inflation

Another advantage of owning a home is that major cost of home ownership which will be your monthly mortgage payment, is not affected by the inflation rate.

That is, if you have a fixed-rate mortgage where the monthly payment is locked for the entire duration of the loan. As long as you keep renting a house, all the costs associated with the home are liable to increase with inflation including the monthly rent.

Taking a moderate inflation rate of 5% per year, a rent of $1000 per month with more than doubled in 20 years. And so will the prices of the homes. 

In fact, you might quickly find that the prices of the home have gone beyond your reach in the next few years. By purchasing home, you are safeguarding yourself from the rising inflation costs. You should also note that home prices tend to increase at a faster rate than the inflation.

So in the future you are likely to be able to purchase ‘less’ home than you could today for the same amount of money.

Consider when you are middle-aged or looking at retirement. Do not underestimate the number of years of housing you need because the US health statistics indicate that at the age of 50 you have a life expectancy of nearly 30 more years. And at the age of 65 you can expect to live for nearly 20 more years. By purchasing home and using a fixed-rate mortgage, you are securing your housing expense against inflation and fluctuation in the future. If you continue to rent, these costs will increase.

You are always going to need a place to live. Over the long-term inflation has almost always been around.

Even if you have to stretch yourself a little bit today to purchase a home, in the years ahead you are going to be glad you did it.

The danger with renting long-term is that all of your housing costs increase over time. This does not mean that everybody should buy because of inflation but if you are not going to buy now then you at least need to plan for the future carefully. You need to prepare for the rising housing costs. Housing in prime locations and major residential areas is only going to get harder and more expensive to find.

Avoid Unpleasant Landlords

One of the great advantages of owning your own home is that you do not have to deal with unpleasant landlords. 

The problem with many landlords is that they are slow to make expenses on property maintenance and improvements. 

While the smarter landlords realize that by up-keeping their property and maintaining it will attract better tenants and a better rent, several are of the mentality that they can maximize their profit by being stingy about the maintenance cost.

However, when you own your house, you will be completely responsible about finding responsible and good contractors to do any repairs and improvements in your house.

While you can bring about any changes like changing the floors, paint on the walls, modernizing your kitchen and bathrooms, you will have to undertake the job of managing all this yourself.

As difficult as it is for landlords to find good tenants, it is probably just as difficult to find good landlords. 

Apart from being problematic as far as spending money on property maintenance and repairs is concerned, the landlord may decide to sell the property and force you to move.

For this reason it is important to include a clause in the lease contract that guarantees user the right to renew your annual lease for a certain number of years even if there is a change in the building ownership. Unless the landlord is already expecting to sell the property, he should be delighted in knowing that you are expecting to stay for some time and he will not have to look for new tenants in the very near future.

Make The House Your Own

The great relief of owning your own home is that will you can do whatever changes you like. Many people do the same when they rent the home but this is not usually recommended.

Any improvements that you make on a rented property costs you time and money and benefits the landlord financially. If you can convince your landlord to take on the expense of repairs and improvements at their expense then great. Otherwise spending on a rented home might make you happy during the time that you are living there but will end up as a loss to you and gain to the landlord once you have to move. When you have a place of your own you can do anything and everything like putting in hard wood floors, changing the carpeting, changing the paint the walls etc.

When you own the home and you want to make changes, keep 2 things in mind.

Do not make the house too strange.

If you need to sell your house in the future, the more strange and outrages you made it, if you buy as it will appeal to. For this reason focus on the improvements that add value to the house such as skylights, a deck for outdoor living area, updated kitchens and modern bathrooms and so on.

Do not overextending your finances.

It is a very common reaction would people who purchase their homes to get excited and want to do several new things to make their homes more attractive and habitable. However, you should take a deep breath and give yourself some time to settle down before you do any major remodeling or changes in the home. Changing, improving and remodeling is going to cost money. Never lose focus of other important financial goals such as saving for retirement, children’s marriage or college education. When deciding to spend on renovation on the home spending more than what you can afford on your home can not only interfere with other important financial goals but also get you into significant debt and even build up high interest consumer debt as a prelude to bankruptcy.