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.

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?

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.

What Are Assumable Mortgages

Assumable mortgages mean that the current mortgage can be assumed and undertaken by another person who buys the home from the current owner under the same terms and conditions or a variation in the terms and conditions if stipulated in the mortgage contract.

In eligible mortgage the home buyer assumes all responsibility for the sellers existing mortgage and all obligations to make future payments as if the loan had been taken by the home buyer himself.

Value of an Assumable Mortgage To Buyers and Seller

The main advantage that a buyer has when taking on an assumable  mortgage is that he could find lower interest rate on a mortgage than the ones that could be existing in the current market scenario. If a home seller has a 5.5 mortgage for example and the best mortgage rate that can be found in the current market is 7.5% then both the buyer and the seller can benefit from having an assumable mortgage. Taking on and an assumable mortgage also helps avoid settlement and closing costs on a new mortgage. During the period that the market rates are low there is little interest in assumptions. But when the market mortgage rate interest is high, assumable mortgages can not only help the buyer secure a lower rate of interest and save money but also help the seller in finding more buyers for the home.

The value of taking on an assumption depends upon the difference in the current interest rate and the interest rate on the mortgage as well as the durations that is left on the current assumable mortgage along with the balance remaining. Other factors such as how long the buyer expects to have the mortgage and the investment rate the buyer could on on savings from the low rate also make a difference the larger the balance on the mortgage, the larger the difference in the current mortgage rate and that of the assumable mortgage, the longer the buyer expects to be in the home the more he can benefit by assuming an existing mortgage. For example if a 5.5% loan has a 100,000 balance with 200 months remaining while the 7% loan on the same mortgage should be for 30 years, assuming that the buyer expects to be in the house for five years and can run 4% on investments the value of the assumable mortgage is about $7000. This value does not even include the settlement costs and losing costs that would need to be paid for a new mortgage.

On the other hand the saving could be substantially less if the buyer has to supplement the existing loan balance with new the new second mortgage at a higher rate which could be the case if the value of the house has appreciated since the assumable mortgage was taken. The buyers who stand to benefit the most from taking on an assumable mortgage are the ones who have the cash to pay the difference between the sale price and the balance of the old loan.

However, a buyer should not typically expect to take on the full advantage of assumption. The seller usually hopes to benefit as well by sharing the savings that the buyer will experience from the resumption. The sellers share of benefit could also be in the form of a higher price for the house.

Assumable Mortgages Come At a Cost to the Lenders

assumable mortgages come at a cost to the lender. While both the seller and the buyer can benefit from the zoomable mortgage, the lender faces a second disadvantage. While he could have had the old mortgage loan with interest rate of 5.5% completely paid off when the house was sold and the new modesty in other higher rate of interest the old mortgage loan at the 5.5% has to continue on the books. In the earlier years of 1970s and 1980s lenders couldn’t do anything about this and the courts ruled that the lenders could not prevent assumable mortgages.

However, after that experience the lenders began to insert the one sale clauses in their contract notes. These clauses stipulated that if the property is sold the loan must be repaid. Even with due on sale clause the lender may allow resumption keeping loan on books, awarding the cost of making the new loan but with the interest rate being bumped to the current market rate. FHA mortgages and VA mortgages are an exception to this clause. They are still completely assumable which is one more reason why they seem attractive to new mortgage borrowers.

Illegal Assumption of Mortgages

This is also known as a wraparound mortgage. Raising the interest rate on an assumable mortgage the most most of the benefit to both the buyer and the seller. In some cases the seller attempts to retain the benefit buying agreeing to a sale using the wraparound mortgage without the knowledge of the lender. In this case the seller takes on a mortgage from the buyer which is larger than the amount the balance of the old loan and continues to pay the old mortgage out of the proceeds of new one.

This is an extremely risky process. It is risky and more than one ways. First of all if the lender happens to find out that such a proceeding has taken place, he may hold the seller in violation of the loan contract. If this happens the lender can demand the complete and full payment of the mortgage immediately. This can put the seller into a lot of problems. Also if the buyer refuses to make good on the arrangement with the seller and the future there is very little that the seller will be able to do. He has already given up the ownership of the house but will retain the liability of the original mortgage.

Legal Assumptions on the Garn-St. Germain

Whether the mortgage includes the due on sale clause or not certain assumptions are explicitly unknowable on certain types of transactions under the Garn-St. Germain act of 1982. Some such examples are when the title is transferred after the death or divorce or the transfer is to an inter vivos living trust where the borrower is the beneficiary and remains occupant.

Under these circumstances the due on sale clause cannot be implemented. Borrowers with low rate mortgages were involved in a transfer of ownership that is something other than the standard arms length purchase and sale should consult an attorney on whether the transaction falls under the Garn-St. Germain exemption.

Offering a Assumability For Price As an Option

Certain lenders are willing to offer the adjustability feature on a mortgage loan for a certain price. When the borrower is duly concerned with the interest rate which could go higher they may be willing to pay extra for a suitable mortgage which will give them an edge when they want to sell their house in the future. For example a borrower willing to take a 6.5% 30 year FRM might be willing to pay 6.85% for the right to make his mortgage assumable. If the interest rate on the mortgage was to become extremely high in the future being able to offer a 6.85% loan to prospective buyers would have a great value and fetch a good price for the house.

An assumable mortgage has some features and differences to a portable mortgage. If your mortgage is the assumable when you sell your home it can be transferred to the buyer. If the mortgage is portable it can be shifted to a new property that you want to buy.

Portability will not be of much use to you if you decide to rent, go to a nursing home or die whereas an assumable mortgage retains its value in these situations. On the other hand some portion of the value of an assumable mortgage has to be shared with the buyer as well. A mortgage that is both portable and assumable will have the greatest value to homeowner.
Lenders who offer to make a mortgage assumable would require that the new borrower must meet the lenders  qualification requirements. Borrowers purchasing the option will need to be confident that the lender won’t tighten its requirements when the market-rate increases.

The best kind of assurance will be if the lender commits to accept the approval of the new buyer under one of the automated underwriting systems developed by Fannie Mae or Freddie Mac.

FHA and VA Loans Are Assumable

Loans insured by the FHA or guaranteed by the VA have always been a  assumable. This has always given them a certain advantage over other kinds of loans. This also gives the borrower an advantage when he wants to sell his house in the future if the interest rate are expected to increase.

Old FHA closed before December 14, 1989 and VA loans closed before 1 March 1988 are assumable by anyone. Byers for these mortgages don’t have to meet any requirements but the seller remains responsible for the mortgage if the buyer doesn’t pay. These Loans are now very difficult to find since they are from a long time ago. However, any seller who is allowing an assumption on the mortgage without signing a release of liability is looking for trouble. Even if the new buyer continues to pay the mortgage the seller’s ability to obtain a new mortgage would be prejudiced by the continued liability on the old one.

The liability on the assumed mortgage can be removed if the seller requests the agency to underwrite the new buyer. If the agency approves the buyer then the seller will be released from liability on the FHA or VA  assumable mortgage.

Assumption of FHA and VA loans that have been closed after the above-mentioned dates required approval of the buyer by the lender. The approval process is pretty much the same as it would be for a new borrower.

Upon the approval of the new buyer the seller of the house is really of liability on the mortgage. The FHA allows the lenders to charge a $500 assumption. And the fee for the report as well. The VA allows the $255 processing fee and a $45 closing fee. The VA itself receives the funding fee of half of 1% of the loan balance.

How To Choose The Best Fixed-Rate Mortgage

We have already spoken about what factors to consider when deciding between a fixed rate mortgage and an adjustable rate mortgage. If you are still stuck with this decision, you should read that section again.

As mentioned before if you want peace and security of mind, you would probably be better off with a fixed-rate mortgage because it is completely predictable in terms of the amount you have to pay in the future. However, an adjustable-rate mortgage can help you save money in the long run if you’re ready to gamble a bit on market trends.

A fixed rate mortgage is usually easy to find than an adjustable-rate mortgage. However, this does not mean that you should pay any less attention to the various features concerning a fixed-rate mortgage. In this section we will discuss a few of these.

 

Contact information.

You should always have the phone number that 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

But 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 of to complain if the process is moving as expected.

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 everything from conducting credit investigation to preparing loan documents that you will sign. 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

As we have discussed earlier 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

You should ask the mortgage about down payment requirement. 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. If you cannot make 20% down payment and don’t want to take the private mortgage insurance and you can utilize the 80-10-10 financing technique that we have discussed earlier.

Loan amount allowed

Posted on case and does have different slabs of terms and conditions that apply to different levels of borrowing. Getting a certain interest rate and terms and conditions that you like is no good if you are not being lent to amount your need. Ask the lender how much amount he is willing to give.

Term

What is the term of the mortgage that you are qualifying for? Or the terms and the interest rate valid for the 30th or 15 year mortgage. The interest rate on a mortgage to different towns also tends to defer.

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-counseling out. The lender is bound to get 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?

Should You Lock Interest Rate With A Mortgage Lender?

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 as it’s often called provides you with peace of mind and guards you against interest rate inflation in the next few days that you take to decide and make up your mind.

What you’re doing is that you’re paying the mortgage lender a certain amount and transferring the risk of something happening in the market that could increase the cost of the loan. Locking a rate on the mortgage is analogous to buying insurance. You pay a premium to transfer the risk of something bad happening onto the lender, which in this case is increase in the interest rate in the days between the quote and the processing of the home loan.

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. So the question is this paying extra worth it?

If you want peace of mind and are getting an actual good interest rate, it makes sense to block it just in case it happens to increase in future. Compared it to a situation where you have paid for rate lock and the rate increases by .5%. Over a 30-year mortgage for $200,000 an increase of .5% means that you would be paying approximately $24,000 more. This does not seem a lot compared to the initial $250 or $500 does it?

No one can really predict what happens to the interest rate in the next month or two. Rate lock is simply buying peace of mind when you know that what you’re getting now is a good deal. Be sure to get the lender’s written commitment to the rate lock. Verbal assurances should be considered completely worthless.

Whenever you are getting quotes from a lender for a fixed-rate mortgage, you should jot down information on a piece of paper so you can make comparisons easily.

Annual Percentage Rate, APR of a Mortgage

The truth in lending now requires that lenders calculate an annual percentage rate when quoting the interest rate for a home loan to the borrower. That annual percentage rate, APR, is supposed to take into consideration the entire cost of the loan which includes the loan origination fee, processing fee, closing costs and any other charges that the borrowers have to pay. In theory this kind of calculation is supposed to give you the total cost of the loan and help you compare different mortgage loans with different features such as comparing a 30 year fixed-rate loan at 7.5% with a 1 point purchase with a 7.25% with a two-point purchase.

Since the annual percentage of the mortgage includes other costs, it is higher than the interest rate quoted by the lender. The only exception is when the mortgage loan is no point and no fee mortgage in which case APR will be the same as the interest rate on the mortgage.

The APR greatly depends upon the time of the mortgage is help. When the APR is calculated, the lender does not take into account the fact that you might not stay in the home for the prescribed term of the mortgage. Since the cost of the loan is spread out over the entire term of the mortgage, leaving the home before the term is over, increases the APR because the costs have a lesser time to spread over. The calculating of the APR for an adjustable-rate mortgage which may or may not adjust monthly or annually based on the movement of an index that’s impossible to predict, can be a brainstorming process and really quite futile. At best you can get an approximate idea based on the maximum limit set on the adjustable-rate mortgage. These limits are how high the interest rate can increase every year and also during the entire term of the mortgage.

In order to rightfully compare mortgage loans make sure the mortgage lender provides interest rate quotes for loans with identical points and term.

Should You Buy Points or Pay More Interest Rate?

The interest rate on a mortgage is and should always be quoted with the points you need to purchase to qualify for that particular rate.

In most cases one point is equal to 1% of the amount that you borrow. For example if a lender says that a loan costs 1.5 points they mean that if you take the loan you must pay the lender 1.5% of the loan amount as points. On our $200,000 loan 1.5 points will cost you $3000.

Most of the mortgage lenders will charge you points. However, there are certain mortgage lenders that may offer you a home loan without the requirement of purchasing any points.

However, this does not mean the loan is going to be necessarily cheaper.

Usually there is a trade-off between the points that you purchase and the interest rate you pay on your mortgage loan. The more points you purchase the lower interest rate you qualify for.

Some lenders will push a zero point mortgage rather aggressively. In almost all such cases, their interest rates or other charges are such that they offer no additional benefit.

The question of whether or not you should buy points, or how many you should buy, you need to do a simple calculation that involves how long you intend to stay in your home.

If you intend to stay in your house for several years, making a down payment for the purchase of points will save you money.

If you are constricted for cash during the time of the mortgage or you do not intend to stay in the house for a long time then you may go for a no points mortgage with a higher interest rate.

The bottom line is, the longer you intend to stay in the house, the better it is to get a lower interest rate.

Take the following example. Suppose you borrow $150,000 for a home loan. One lender quotes to 7.25% on a 30 year fixed-rate mortgage and charges 1 point.

Another lender quotes 7.75% which is .5% higher than the first one and doesn’t charge any points.

It is obvious that you will save more money on your monthly payments with the first mortgage that has the points.  

The 7.25% mortgage costs $ $1024 per month and as compared to 7.75% mortgage you save $51 per month.

In order to recover the $1500 that you paid to purchase the point you will have to stay in the home for approximately 29 months.

If you keep the loan for the remaining term of the mortgage, you will save $16,850 with the point purchase mortgage.

In order to make a fair assessment of the different loan programs offered by mortgage lenders, have them provide interest rate quotes in written where the point should also be mentioned.

Make sure that the comparison is done between similar mortgages with same term.

Also, keep in mind the other costs associated with a mortgage such as closing costs, loan origination fee, processing fee etc.