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Do you have a Real Estate question? Wondering about financing a property, personal finance, improving your credit , managing your debts, buying, selling, or real estate investment? Send your inquiry to The Mortgage Guru. |
Andre Plessis |
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Get free monthly tips on mortgages, real estate, credit cards, taxes, real estate investing, and personal finance.
December 2007
New IRS Website
Section Provides Information for Those Facing Foreclosure
http://www.irs.gov/newsroom/article/0,,id=174034,00.html
Why do Mortgage Rates go up or Down?
The Fed's decision to cut interest rates can cause interest rates to fall or to rise. There is no way to know. However, it is known that interest rates are falling to near multiyear lows, making now the perfect time to refinance before new rules go into effect that will make it more difficult for some people to borrow.
A number of factors send mortgage rates higher. Sometimes the stock market go up, causing investors to move their money out of bonds and into stocks. When that happens, bond prices fall and yields rise, and mortgage rates follow bond yields.
6 Key Questions Before Doing a Balance Transfer
• How long does the introductory rate last?
• What is the card's annual percentage rate after that introductory rate expires?
• Is there a balance-transfer fee?
• Does the teaser rate apply to transferred balances or new purchases or both?
• Is there any annual fee?
• What about late fees and over-the-limit fees?
Consumer
Bankruptcy: What You Should Know
In Title 11 of the United States Code (the Federal Bankruptcy
Code), there are four bankruptcy filings:
 | Chapter 7 - Liquidation |
| Chapter 11 - Reorganization |
| Chapter 12 - Adjustment of Debts of a Family Farmer with Regular Annual Income |
| Chapter 13 - Adjustment of Debts of an Individual with Regular Income |
A Chapter 7 bankruptcy is often referred to as a liquidation bankruptcy. In Chapter 7 proceedings, you do not pay anything to unsecured creditors included in your bankruptcy petition unless the court requires a liquidation sale of your nonexempt assets.
Chapter 13 bankruptcy does not require
liquidation of nonexempt assets to satisfy your creditors. Instead, you pay some
or all of your unsecured debt back through the court over a 36- to 60-month
period. The percentage of unsecured debt you are required to repay must be at
least equal to what your creditors would receive if your nonexempt assets were
liquidated as part of a Chapter 7 bankruptcy. If you successfully complete the
court-ordered repayment schedule, any unpaid unsecured debt is then discharged.
Chapter 11 You are still liable for:
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alimony and child support |
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certain back taxes |
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credit card charges made within 20 days of filing |
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debts resulting from fraud. |
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money owed as reparation for intentional harm you caused someone |
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personal loans and installment loans made within 40 days of filing |
If you have regular employment, you will most likely have to file
for a Chapter 13 bankruptcy. This type is somewhat less of a stigma on your
credit report, because you do repay your debts through a court-ordered repayment
plan that usually stretches over a three-year period. It also allows you to hang
on to your assets.
Chapter 13 you will still be liable for:
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alimony and child support |
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long-term debts that were not fully repaid during the repayment period |
Although the bankruptcy will be removed from your credit record after 10 years (7 years if it's a Chapter 13), proof of it will remain on file for 25 years in a regional bankruptcy warehouse. For the rest of your life you will have to answer "Yes" to the question, "Have you ever filed for bankruptcy?" or risk serious penalties.
November 2007
APR reflects the annual interest rate that is paid on an investment, but doesn’t take into effect how interest is applied. APY takes into account how often the interest is applied to the balance, which can range anywhere from daily to annually.
For example, let’s say you deposit $20,000 into an account that has an APR of 5%. If interest is only applied once per year, you would earn $1,000 in interest after one year.
On the other hand, let’s say that interest is applied to the balance monthly. This means that the 5% APR will be broken down into twelve smaller interest payments for each month, or in this case around 0.42% per month. Using this method, your $20,000 deposit will actually earn $84 in interest after the first month. That means in the second month, 0.42% will be applied to the new balance of $20,084, and so on.
In this example, even though the APR is 5%, if interest is compounded once a month, you would actually see almost $1031 of earned interest after one year. That means the APY turns out to be around 5.15%, which is the actual amount of interest you’ll earn if you hold the investment for one year.
October 2007
A credit-file freeze prevents new creditors from accessing your credit file without your consent. When a freeze is in place, an identity thief cannot open a new account because the potential creditor will not be able to check the credit file. Consumers, meanwhile, can "unlock" their accounts temporarily if they are applying for credit or permanently if they wish.
How do I freeze my credit?
For instructions and information on filing for a credit freeze, contact the three major credit bureaus. Requests must be made in writing with specific information, and fees may apply except for consumers who have been victims of identity theft.
• Experian (available Nov. 1): www.experian.com/consumer/security_freeze.html or call 1-888-397-3742
• Equifax: www.llearn.equifax.com/credit/fair-credit-reporting or call 1-800-525-6285
• TransUnion: www.transunion.com/corporate/personal/fraudIdentity Theft/preventing/securityFreeze.page, or call 1-800-680-7289
How much does it cost?
Experian said freezes will be free for victims of identity theft. For other consumers the fee for a freeze, or a temporary or permanent removal of a freeze, will be $10, unless a lower fee is mandated by state law. Similar freeze programs already have been announced by the other major credit bureaus, Equifax and TransUnion.
Many interest-only loans are structured to convert to amortized loans at some stage in their life. You want to know whether there’s a conversion date because that would substantially increase your monthly mortgage payment upon conversion. For example, if an interest-only mortgage converts to an amortized mortgage after 10 years, the monthly mortgage payment is sized at that point to pay off the loan in the remaining 20 years of the loan’s life. Instead of having 30 years to repay the mortgage with conventional financing, you only have 20 years to pay down the note.
Lower Your Credit Card Interest Rate in Five Minutes
As you are aware, credit card interest rates can be quite high with rates upwards of 30% annually. This enormous rate can make it very impossible to pay off your debt if you can only afford to pay just the minimum each month. One way to get out of debt even faster is to reduce your current interest rates.
It may only take a few minutes of your time to save hundreds, if not thousands of dollars during the life of your debt balance. Credit card companies are often willing to reduce your rate if you simply ask. While it won’t always work; it doesn’t hurt to try.
4 Factors That Will Improve Your Chances of Negotiating a Lower Rate
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You pay more than the minimum each month. |
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You have a good credit score. |
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You have not recently requested a change in interest rates for that particular card. |
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Your account is in good standing with a history of regular on-time payments. |
What If They Say No:
Don’t worry if they say no to a rate reduction at first. If they are not willing to reduce it, you can inform them that you will be doing a balance transfer to another card with a lower rate. They want your business, so if you mention that you could be moving the money you may have more success.
If they still say "no", it isn’t the end of the world and you may still have luck with them in the near future. Keep up with your payments for another tfew months and try again. It doesn’t hurt to ask, but you won’t know unless you try.
September 2007
Interest-Only Loans Have Risks
Many interest-only loans are structured to convert to amortized loans at some stage in their life.
You want to know whether there's a conversion date because that would substantially increase your monthly mortgage payment upon conversion. For example, if an interest-only mortgage converts to an amortized mortgage after 10 years, the monthly mortgage payment is sized at that point to pay off the loan in the remaining 20 years of the loan's life. Instead of having 30 years to repay the mortgage with conventional financing, you only have 20 years to pay down the note. A common interest-only structure is a 5/1, 7/1 or 10/1 adjustable rate mortgage, or ARM. Fixed-rate interest-only mortgages are available, the typical interest-only loan is not interest-only for the life of the loan, just over an initial term. At the end of that initial term, the loan payment will be recalculated to include the repayment of principal. Because the principal repayment takes place over fewer years, there can be a big jump in the monthly mortgage payment. My advice is for you to always consider the worst case scenario.
How To
Avoid Subprime Mortgages
Subprime references the borrower's credit rating, so the easiest way to avoid getting a subprime loan is to have a prime credit rating.
How Does The Federal Reserve Fund The Market?
The Fed can provide funding in four ways:
It is helpful to understand the four major interest rates that are affected by the Federal Reserve.
Discount Rate
T
he interest rate that banks pay when they borrow money directly from the Federal Reserve.Banks prefer to get short term financing by:
Fed Funds Rate
T
he interest rate that banks pay when they borrow money from each other here in the US. This rate is also determined by the Federal Reserve because banks in the U.S are part of the Federal Reserve System. The Fed’s main role is to maintain "monetary stability" by keeping a close eye on the flow of money throughout the economy. One way they do this is by regulating the interest rates that banks charge each other for short term funds.LIBOR Rate
The London Interbank Offered Rate (LIBOR) is the interest rate that banks pay when they borrow money from other banks anywhere in the world (primarily in the international wholesale money market based in London). There are various types of LIBOR rates including the 1 week LIBOR, 1 month LIBOR, 6 month LIBOR, and 1 year LIBOR; these are the rates banks would pay if they want to borrow funds for 1 week, 1 month, 6 months, etc. Although the LIBOR rates are determined by the financial markets at any given time, they are very closely related to the Fed in that LIBOR most often changes when the market anticipates that the Fed will change their Fed Funds Rate. LIBOR is the base rate that is used on many adjustable rate mortgages (ARMs) in the U.S. The reason LIBOR is used most often for U.S adjustable rate mortgages is because LIBOR is really the most accurate measure of a bank’s cost of borrowing funds since most banks do business internationally these days.
Prime Rate
The Fed Funds Rate + 3; this is the base rate that is used for most consumer loans such as credit cards and home equity lines of credit, as well as most small business loans. Like the LIBOR, the Prime Rate is also tied to the Fed Funds Rate.
The Federal Reserve’s main goal is to "maintain monetary stability" by keeping a close eye on the flow of funds in the U.S economy.
How Does The secondary Mortgage Market Works?
Many mortgages are sold to investment banks, which bundle them into pools of thousands of home loans. Investors buy bonds that entitle them to a share of the principal and interest that homeowners pay every month. The prices and yields of these bonds can vary.
Bond prices and yields vary depending on:
• The average interest rate of the loans in the pool.
• The odds of the loans being paid off early (high-interest loans are likely to
be refinanced more quickly, removing those loans from the pool).
• The credit risk involved. Certain borrowers impart more risk to the bond
holders who own a share of their loan payments. Among those risky borrowers:
people with less than perfect credit, homeowners who have accumulated debts and
borrowers who don't document their incomes.
Do Inquiries Affect Credit Scores?
Should You Borrowing From
a retirement plan?
It's the worse thing you can do. It's better to take out a second mortgage because the interest will generally be tax-deductible. If you can't do that, find money anywhere else. Don't borrow from a company plan. This is a last resort. It's wiping out your retirement savings and you'll pay a penalty. You cannot ever borrow from an IRA.
What is FHA Loan?
A loan insured by the Federal Housing Administration open to all
qualified home purchasers. While there are limits to the size of FHA loans, they
are generous enough to handle moderate-priced homes almost anywhere in the
country. FHA Loans Are Not Government Freebies
They aren’t just for home buyers of limited means. And, you don’t have to
be a first-time buyer to benefit. But FHA loans offer other benefits for home
buyers that make them attractive.
First, FHA loans aren’t limited to a certain geography. One of the most
attractive features of a FHA loan is that the borrower is only required to put
down as little as 2, 3 percent of the loan amount as a down payment. But
remember that you can fin lenders who can lend you 100% money if you do not have
any downpayment.
But before you start to think that these are inexpensive loans, think again.
There are fees and costs associated with them. Also, FHA lenders require the
same debt-to-income ratio as you would find on a fixed-interest loan or
adjustable rate mortgage (ARM), although there are some FHA loan types that
extend these ratios.
Shopping For a Home Loan? Your Application May Trigger
Unsolicited Mortgage Offers
If you apply for a mortgage, your mailbox mailbox may fill up quickly with unsolicited offers from other mortgage companies. It’s not that the company you applied to is selling or sharing your information. Rather, it’s that creditors including credit card and mortgage companies are taking advantage of a federal law that allows them to identify potential customers for the services they offer, and then market to them.
The unsolicited letters about competing offers often are called “prescreened” or “pre-approved” offers of credit. They are based on information in your credit report that suggests you meet criteria set by the creditor making the offer. As an example, you live in a certain geographic area, you have a certain amount of credit card debt, or you have a certain credit score. Credit bureaus and other consumer reporting companies sell lists of consumers who meet the criteria to insurance companies, credit card companies, lenders, and other creditors.
When you apply for a mortgage, an “inquiry” appears on your report showing that a lender or mortgage company has looked at it. The inquiry indicates you’re in the market for a home loan. That’s why mortgage companies buy lists of consumers who have a recent inquiry from a mortgage company on their credit report. Federal law allows this practice if the offer of credit meets certain legal requirements.
It is obvious that some mortgage companies benefit from the practice. But the FTC says consumers can benefit, too: prescreened offers can highlight other available services and make it easier to compare costs while you carefully check out the terms and conditions of any offers you might consider.
Still, some people may prefer not to receive prescreened offers of credit and insurance at all. Here’s how to stop them:
Opting out of prescreened offers does not affect your ability to apply for credit or to get it.
Adjustable-Rate Mortgage Indexes Explained
The hardest-to-understand elements of an ARM are the index and the margin. When you get an ARM, two main factors determine the rate you pay: the index and the margin. The index is a rate set by market forces and published by a neutral third party. The margin is an agreed-upon number of percentage points that is added by the lender to the index to determine your rate.
A mortgage shopper will run across a acronyms to denote various ARM indexes, such as COFI, LIBOR, MTA and CMT. Each index responds at its own peculiar pace to the economy's ups and downs. Indexes based on average rates include the 11th District Cost of Funds Index, or COFI, and the 12-month moving Treasury average, (variously called the MTA and the MAT, for monthly average Treasury). Of indexes based on spot rates, among the most popular is the one-month London Interbank Offered Rate, for London Interbank Offered Rate. Then there is the constant maturity Treasury, or CMT, index, which comes from a short-term average that acts more like a spot rate.
What will your rate be in the future? Let's take the following example. It is February 2003 and you select a 3-year ARM. The rate is 4.5% with an index of 2.75%, a margin of 2.5% and a rate cap of 2%. So the rate will be fixed for 5 years and will adjust on March 2006. March 2006 the index is now 5.35% and your margin is 2.5%. So March 1rst your rate is no longer 4.5% but will be 5.35% + 2.5% so 7.85%. Since you have a 2% cap your rate will be 6.5%. On a $300,000 loan your payment goes from $1,520.06 to $1,896.20, so $376.14 increase in your monthly payment. If you are NOT able to refinance because your credit is not so great and you have not enough equity, you will be stuck with your higher mortgage payment. Have you thought about that when you selected your ARM?
August 2007
What is The Discount Rate and Federal Funds Rate
The discount rate covers only loans that the Fed makes directly to banks. But the funds rate covers all loans that banks make to each other on a short-term basis. It is much more critical in determining interest rates in the economy such as banks' prime lending rate.
Federal Funds Rate (Fed Funds Rate)
The Federal Funds rate is the interest rate on overnight loans between banks. These loans are most often used to satisfy the reserve requirement.
The Federal Reserve Act specifies that the FOMC should seek "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." At each meeting, the FOMC closely examines a number of indicators of current and prospective economic developments. Then, cognizant that its actions affect economic activity with a lag, it must decide whether to alter the federal funds rate. A decrease in the federal funds interest rate stimulates economic growth, but an excessively high level of economic activity can cause inflation pressures to build to a point that ultimately undermines the sustainability of an economic expansion. An increase in the federal funds interest rate will curb economic growth and help contain inflation pressures, and thus can promote the sustainability of an economic expansion, but too large an increase could retard economic growth too much.
What is Mortgage Servicing Fraud?
Loan servicing companies handle the operational aspects of mortgage lending. They collect mortgage monthly payments, credit those payments, send reminders when payments are overdue, assess late charges, establish escrow accounts for the payment of taxes, hazard and flood insurance, and private mortgage insurance. They pay out taxes and insurance premiums when due, and account for all of the above to the investors who own the loans. They also are responsible for managing loss mitigation when a loan gets in trouble. This can include collection activities, loan workouts, and, if necessary, foreclosure. Some even manage the foreclosed property.
If you get a notice from the company to whom you have been making monthly payments that your loan is being transferred, it is likely that the ownership of your loan has not changed; just that one big mortgage servicing company has bought a portfolio of loan servicing rights from another.
There is a lot of money in the servicing of mortgage loans and so it has become big business in the U.S. A servicing company typically collects a small fraction of the monthly payments on a performing portfolio, a small amount per loan but a significant amount on a portfolio valued at millions of dollars, particularly since there is little work involved in servicing performing loans.
Mortgage Servicing Fraud is committed when the lender or lender's servicer manipulates performing loans to falsely indicate a default by:
| Entering on-time payments as late, to exact illegal and unauthorized fees. |
| Charging force-placed insurance when the homeowner already has full coverage. |
| Refusing payments to guarantee default. |
| Adding thousands of dollars in unearned legal fees to create a default. |
| Ignoring customer complaints and "qualified written requests". |
| Arrogantly violating numerous laws and regulations. |
| Falsely reporting a default to the credit bureaus when it is the servicer creating the default. |
| Paying property taxes late, then charging the late penalties to the borrower. |
| Paying taxes and insurance on the wrong property. |
| Coercing the homeowner into signing a forbearance agreement to strip away their legal rights. |
| Falsifying records. |
| Creating additional false deficiencies through a variety of questionable practices. |
| Adding misc. fees to purposely create a deficiency with the borrower's next payment. |
| Repeatedly committing fraud upon the courts by stating they are the Holder and Owner of the Note - when in fact - they do not own the Note. |
| Intentionally cause delays to run up your legal expenses. |
| Not applying payments to principal and interest. |
| Committing perjury through flagrant misrepresentations to the courts. |
| Withholding or redacting discovery evidence. |
| Conjuring up events that never happened and refusing to provide documentation to support these fallacies. |
| Refusing to cooperate with other lender's attempts to refinance and stop the illegal foreclosure. |
| Forging documents. |
| Blatantly committing fraud upon the courts. |
| Apply to the trust for reimbursement after deducting the fees from the borrowers p&i payments. (Known as double-dipping.) |
| Rounding up ARM rates when on a downward trend. |
| Not adhering to the terms of the loan documents. |
Should
I borrow from my 401(k) plan?
Robbing your IRA, Roth IRA or 401K to pay off your current home loan isn’t going
to make it easier to retire, it’s going to put it off longer. In most cases,
it's a terrible idea. Shortchanging your plan will cost you a fortune. You're
losing years of tax-free compounding for every dollar you borrow. If you leave
your current employer, you will probably be required to pay the loan back
immediately. If you fail to pay it back on time, hefty penalties and tax charges
will take a big chunk of your retirement savings, money that also could have
been compounding for years.
Cashing out your 401(k), IRA or Roth IRA to pay off a low-interest home loan
makes no sense at all. You'll pay up to 35 percent in federal tax, plus state
taxes, plus a penalty of 10 percent if you're under 59 1/2 years old.
I’d advise against tapping your retirement plan for anything other than
life-threatening emergencies.
To determine how much money you will lose visit
http://www.bankrate.com/brm/calc/401kl.asp
July 2007
Is Interest on a Reverse Mortgage Deductible?
No interest on reverse mortgages is not tax deductible. Homeowners who take out reverse mortgages can’t deduct the interest from their taxable income because they don’t pay it currently, as it is added to their loan balance, which isn’t paid until the house is sold. Another drawback to a reverse mortgage, it is very expensive money. First, there are closing costs that are much higher than conventional mortgages. Second, many lenders charge monthly service charges. Third, the interest rates are quite a bit higher (currently 8% to 10% versus 5 to 6% conventional mortgage, 2005). Fourth, the homeowner might be spending his children’s inheritance. Hopefully most children will be supportive of this if it means a better standard of living for the parent. Last, but not least, because you make no payments, the interest is compounded monthly. This means you pay interest on the principle borrowed and on the accumulated interest. These costs of money are very high. You can get the money you need other ways, and it could probably cost less.
What is Your Credit Score? Use our credit score
compass to quickly estimate what your credit score. Estimate your credit score in seconds
How Can You Establish Credit ?
If you want to establish credit you may want to apply for your own credit cards by visiting the following links: student credit card, secured credit card, or subprime credit card.
Real Estate Sale Leaseback:
A real estate transaction in which the buyer leases back the
property to the seller for a specific period of time. Also called seller
rent-back.
Real estate sale leaseback financing is when a business sells its commercial property for current market value and then instantly leases it back. They sell it to gain built up equity which frees up capital which can be used to invest back into the business. There are many other benefits to this transaction as well.
The balance sheet of your business is improved greatly and you retain control of the property. Since you will be leasing the property you can defer a good portion of the tax liability. With a lease you can write off the full payment each month whereas with a regular loan only the interest payment can be written off. When you complete this transaction you are always guaranteed the full market value of your property, so you don’t risk losing any money in equity. The other benefit is that you can get a lease for commercial property for up to 25 years, which can lower your monthly payments considerably. This gives you more operating capital each month since your monthly payments will go back down some.
Why Do Interest Rates Go Up?
Higher interest rates, not only a weapon against inflation, but they can bolster a currency by giving better returns on fixed-income investments. A string of rate increases by the Fed helps cushion the decline of the dollar. Higher interest rates, use to combat inflation, can bolster a currency by making certain types of investments more attractive.
Roth IRA Tips
Have you made your Roth IRA contribution yet?
Contributions to a Roth IRA can be made at any time during the year or by the
due date of your return for that year (not including extensions), but it's best
not to procrastinate.
A Roth individual retirement arrangement (Roth IRA) lets you save money for use
in retirement while allowing the savings to grow tax-free.
All of the tax benefits associated with a Roth IRA happen when withdrawals are
made. Subject to certain rules, your withdrawals are not taxed at all.
In other words, Roth IRAs convert investment income (dividends, interest,
capital gains) into tax-free income.
This is in sharp contrast to a traditional IRA where you are taxed when you make
withdrawals.
There are no tax benefits associated with contributions. Contributions to a Roth
IRA are made with after-tax monies. As such, Roth IRA contributions are not tax
deductible and are not reported on your tax return.
Deduct Your Home Equity Credit Line
If you've taken out a Home Equity Line of Credit (HELOC), you could be in for a nice tax break. Interest paid on a HELOC secured by your primary or second home is deductible as a home mortgage interest and reported on Schedule A of your federal income tax return. If you take a HELOC as a second mortgage to pay for major home improvements or a vacation home, the interest is deductible as mortgage interest as long as the debt doesn't exceed $1 million.
If you use a HELOC to buy a new car, pay off credit card debts you can still deduct interest on up to $100,000 of the debt. If you use the money to buy tax free municipal bonds or other securities that produce tax-free income, then the interest is NOT tax deductible.
Is it a smart thing to refinance?
Typically, rates should fall a point or more before you do it.
Refinancing entails closing costs and other fees, so it's important to know whether lower monthly payments will offset that cost. Consider how long it will take you to break even. For example, if refinancing costs run you $3,500 and your payments are $100 lower each month, it will take you 30 months to break even.
State Statutes of
Limitations For Old Debts
When dealing with an old debt, it's important to
know your limits.
Once a debt passes beyond the statute of limitation in your state, a debt
collector no longer has the right to sue you for payment. You may still have a
moral obligation to pay back an old, forgotten debt, but you can't be sued over
it.
Any debt collector who threatens to sue you over a debt that is beyond the
statute of limitation in your state is in violation of the Fair Debt Collection
Practices Act.
How To Protect
Your Assets
Q: I have been told different things regarding purchasing property under an L.L.C. We have been advised that if I purchase A property in my name then quit-claim deed it to an L.L.C., this could cause the mortgage company to invoke the due on sales clause. Then I was advised to purchase a property under an L.L.C. However, I was told by a CPA, that mortgage most companies WILL NOT lend money to an L.L.C and therefore I can't purchase it that way. Is this true? I thought I had a plan and now I am undecided which way to go.
A: What you’ve heard that’s exactly right: you
SHOULD buy your properties in an entity. Now let me tell you what’s wrong: you
should NOT finance these properties yourself and then move them into the entity.
It is in fact true that a lender can call your loan due if you transfer your
property from your own name to that of an LLC, but that’s not even the important
point, as it almost never happens. The important thing is that by doing this,
you’ve created a paper trail that leads directly from your LLC back to you. This
completely defeats the privacy protection that an LLC can provide for you. A
smart attorney, upon seeing that you quit claimed this particular property to an
LLC, will simply search the public record for similar transactions, revealing in
a matter of minutes every property that you own or control.
Most lenders throughout the United States won’t finance properties that are in
LLCs. That’s because most lenders sell their loans to Fannie Mae or Freddie Mac,
and neither of these fine institutions will buy loans that are made to entities.
June 2007
Important Step Before You Refinance
Consult your financial advisers. Financial advisers know which questions to ask to understand your complete financial picture, including events on the horizon. Starting here can save both time and money while making the borrowing process less threatening. Any major financial decision should be weighed with consideration to its tax impact. Speaking with a tax professional can guide you to your smartest borrowing decision.
MGIC MI is now tax
deductible!
One more good reason to make MI (Mortgage Insurance) an option! Congress approved a bill Saturday, Dec. 9, to make mortgage insurance premiums tax deductible.
| Mortgage insurance premiums will be 100% deductible for households whose adjusted gross income is $100,000 or less. |
| The bill, awaiting a final signature, is effective for the 2007 tax year on loans closed on or after January 1, 2007. |
Financing with MI simplifies the mortgage process for borrowers, increases their buying power, broadens their cash-flow options and allows for tapping into equity and refinancing more easily. Now that it's tax deductible, you have one more good reason to make MGIC MI an option.
Why is mortgage insurance now
tax-deductible?
Congress recently passed legislation that allows mortgage insurance premiums to
be tax-deductible on loans originated for transactions beginning Jan. 1, 2007.
Who is eligible for the MI deduction?
Borrowers with household adjusted gross income of $100,000 or less purchasing a
home in 2007 will able to deduct the full cost of the mortgage insurance they
pay during the 2007 tax year.
How does the MI tax deduction work?
Just as your interest payments on your mortgage are tax-deductible, reducing
your overall taxable income, you will now be able to deduct the mortgage
insurance portion of your payment as well.
What is the lender’s responsibility?
To provide the borrowers with a year-end statement reflecting total mortgage
insurance premium paid.
How much of the MI premium can be deducted?
Borrowers with household adjusted gross income of $100,000 or less will able to
deduct the full cost of the mortgage insurance they pay during the 2007 tax
year.
According to an analysis, a homeowner with a $180,000 mortgage would save about $351 in taxes per year because of the law. That assumes that the borrower has good credit and is in the 25 percent tax bracket.
Ask your lender to compare the total costs for piggyback and mortgage-insured loans over the first one, two, five and 10 years, or try out the calculators available on the Web sites of mortgage insurers MGIC.
FHA loans don't have private mortgage insurance, or PMI. Instead they carry a government guarantee. Borrowers pay for that guarantee in one of two ways: they pay a mortgage insurance premium, or MIP, at closing and/or they pay a monthly mortgage insurance premium along with their mortgage payments. For loans that closed after Jan. 1, 2001, if the borrower paid an upfront premium the monthly MIP will fall off after the loan reaches 78 percent loan-to-value, based on the initial purchase price/appraised value of the home and the principal payments made against the mortgage loan with a good payment history. HUD form 92900-b refers to FHA mortgage insurance.
| If you paid an upfront mortgage insurance premium, you will also be charged a monthly mortgage insurance premium until the loan-to-value of your mortgage reaches 78 percent of the initial sales price or appraised value of your home, whichever was lower (provided that premiums are paid for at least five years). You will reach the 78 percent loan-to-value threshold in one of two ways: Through normal amortization as you make your monthly payments, or by paying additional principal on the mortgage. Your lender can advise you on when the mortgage will reach the 78 percent loan-to-value threshold. If you were not charged an upfront premium, you will pay the monthly premium for the life of the mortgage. |
May 2007
Inspections
A good source of experienced professional home inspectors is to hire a member of the American Society of Home Inspectors (ASHI). To find local ASHI inspectors, go to www.ashi.org or phone 1-800-743-2744.
What Are Valid Reasons For Refinancing?
In general, there are 4 good reasons to refinance your mortgage. First, to lower your interest rate, thus your monthly payments. Second, obtain a shorter-term loan to build equity more quickly. Third, to take cash out of your property. Four, Opportunity to convert your loan from an adjustable rate to a fixed-rate installment loan or vice versa.
Auto Title Lending
Strapped for cash, James Hamilton, took out a $1,500 loan last year, using his truck as collateral. In July, when he couldn’t keep up with the escalating balance, James’s car was repossessed.
Total cost for the loan? A $17,000 auto, plus $4,700 in payments.
"I was at home in the shower getting ready to go to work, and I went out to get my truck and it was gone," says James, whose loan carried an effective 300% annual interest rate.
James Hamilton is one of thousands of consumers who have turned to Auto Title Lenders for quick cash and ended up with HUGE problems. Under the loans, sometimes called Auto Equity Lines of Credit or Auto Pawns, individuals offer fully owned cars or trucks as backing for loans of several hundred to several thousand dollars. Lenders take the title to the vehicle and, often, a duplicate set of keys.
Title lending is one of the lesser-known, high-cost loans now proliferating across the country. But consumer advocates call it one of the more dangerous. If borrowers can’t pay back the loans, often due in 30 days, they often roll them over, with multiplying fees. If they still fall behind, their cars can be repossessed.
Alternate credit growing
Auto title lending is part of a huge expansion of the alternative financial system since the 1990s, including payday loans, high-cost mortgage products and check-cashing firms. The industry has boomed by opening outlets in areas not served by banks, promising loans regardless of credit history and providing quick cash, including Internet lending and disbursements via prepaid ATM cards for clients without bank accounts.
April 2007
FREE Credit Score Estimator To Help Guide HomebuyersIn order to help consumers and prospective homebuyers navigate through the complexities of the financial world, credit.com and Bankrate.com are offering a free interactive credit score estimator. Credit.com has launched its "Credit Compass" an online tool that allows consumers to easily gain insight into where they stand with their credit. Bankrate offers the same tool "FICO Score Estimator at www.bankrate.com
Based on their knowledge of common scoring methods, those 2 companies have developed a free online interactive tool to help consumers discern their estimated credit score and better understand how it impacts the way lenders view them with regards to product approval.
Paying Minimum on
Option ARM
Don't pay the minimum on an option ARM. An option ARM is an adjustable-rate mortgage that lets you decide how much you pay each month. You can make a payment that's big enough to pay off the mortgage in 15 years or in 30 years, or you can pay only the interest, or you can make a minimum payment that doesn't necessarily even cover that month's interest. In many cases, when you make the minimum payment on an option ARM, you owe more on your house the next month. You don't want to end up owing more than what you started out with.
2 Don'ts When Facing Foreclosure:
Don't Take a High-Interest 2nd Mortgage: When a property has equity, there are lenders that will give you a 2nd mortgage. The interest rate could be as high as 18% and the upfront fees can be exorbitant. They hope that you' still default, which allows them to take the property from you.
Signing over your property title to another company: Some companies say that after the mortgage is current they will re-sign the property back over to you. This scenario rarely happens. Instead, the company is likely to pull out equity, not make any mortgage payments to the lender and allow the property to be foreclosed. You will not be able to save the property from future foreclosures because the property is no longer in your name. In this scenario the scam artist has title to the home but you are still liable for the mortgage payments.
March 2007
What Is Title Fraud?
The most common cases includes instances that include:
* Someone refinances your property by forging your signature
and using fake identification, running away with the funds and leaving you to
pay the costs of defending your title.
* Someone transfers title out of your name and then mortgages the property
without your knowledge, leaving you with the responsibility of having to repay
the mortgage and reclaim your ownership.
Title fraud can result in the following repercussions for a homeowner:
* The cost of defending one’s right of ownership, which can
cost tens of thousands of dollars;
* The stress and uncertainty surrounding the resolution of title-related
problems;
* The time spent waiting for resolution from the fraud; and
* The loss associated with a fraudulent mortgage that is entitled to remain
registered against the true home owner’s interest.
Straw Buyers
Straw buyers are loan applicants who perpetrators use to obtain home loans, but
who usually don't intend to occupy the properties they're buying.
A straw buyer is usually offered a payment, often sever thousand dollars, for
the use of their name and credit information to make a "false purchase". A straw
buyer may or may not know that their name will be on the mortgage application.
Straw buyers are also used to sign documents that contain false information. For
example a straw buyer might sign something that states that intend to live in
the property when they really have no intention to do so. If a document is
signed that states the property is worth a specific amount, but the straw buyer
has never seen the property, they are committing fraud. If the lender asks if
the down payment came from the straw buyer own funds and he/she answer
dishonestly, this too would be fraud. After a straw buyer takes title to the
property, the mastermind behind the scheme usually assumes the mortgage and the
title to the property. However, a straw buyer may still be responsible for a
mortgage even after someone else has assumed it because it was obtained
fraudulently.
It is a criminal offence to obtain credit under false pretences. If payments are
not made on the mortgage, the lender will foreclose on the property to recover
their losses. The straw buyer could be sued for the difference between the
amount of money received from the sale of the property and the amount of money
owed on the mortgage.
How To Prevent Identity Theft
Every year, millions of Americans become victims of identity theft, which can wreak havoc on their financial futures. A security freeze is a powerful safeguard because it enables consumers to protect themselves before they become victims of identity theft..
Creditors aren’t required to verify the identity of all individuals applying for credit, which makes it easier for thieves to use stolen information to open fraudulent accounts. With just a person’s name and Social Security number, a crook can open a credit account and start charging away, leaving behind a trail of unpaid bills that can ruin the victim’s credit record.
A security freeze enables the consumer to block anyone from looking at his or her own credit reporting file for purposes of granting credit unless the consumer chooses to allow it. This gives consumers complete control over who has access to the information needed to process a credit application in their name, which prevents crooks from opening fraudulent credit accounts and other accounts. When the consumer is applying for credit, the freeze can be lifted temporarily so legitimate applications for credit or services can be processed.
A security freeze puts consumers in control and let’s them decide who gets to see their credit files when it comes to applying for credit.
How do I place a security freeze?
To place a freeze, you must write to each of the three credit bureaus. You must provide identifying information. If you are an identity theft victim, provide a copy of your police report (or DMV investigative report) of identity theft. Otherwise provide payment of $10 to each of the credit bureaus.
February 2007
What is the best way to hold real estate?
The best way to hold title to real estate is usually in a revocable living trust. While you are alive you can buy, sell, refinance and manage your living-trust assets because you are the trustor, trustee and beneficiary.
However, if you become incapacitated, such as with Alzheimer’s disease or a severe stroke, or after you pass on, your successor trustee takes over and manages or distributes your living-trust assets as instructed in your living trust.
After you die, your living-trust assets are distributed without probate costs or delays, according to your living-trust instructions. Your heirs then receive a new stepped-up basis to market value on the date of your death.
How To Protect Yourself From Credit Repair ScamsAds for credit repair scams are everywhere. They may promise to create a new identity for you, or erase your bad credit, even if the items on the credit report are accurate. There is absolutely that a credit repair agency can do for you that you can’t do for yourself. There are free information online, you may call the credit bureau, you may also call The Mortgage Guru or buy books that will show you how to dispute any inaccurate or outdated items on your credit report. It is against the law to create a new identity for yourself or charge you an advance fee for anyone to help you repair your credit. It is a federal crime to to misrepresent your social security number, and obtain an Employer Identification Number (EIN) under false pretenses.
| Check out any company with your local Consumer Protection Agency or the Better Business Bureau before you do business with them. |
| Never give your bank account information, credit card number or social security number over the telephone unless you are familiar with the company, have verified the identity of the company and individual calling, and you know why the information is necessary. |
| Never pay a fee up-front to a company who promises to “guarantee” a loan or credit card to you. |
| Never pay an up-front fee for credit repair until services are rendered. It is illegal for anyone to charge you an upfront fee. |
| Don’t do business with any company that suggests you create a new identity, or that you do anything you think may be illegal. If they do something illegal you may be prosecuted for crime. |
January 2007
What is a reaffirmation agreement?
A reaffirmation agreement is a contract between you and the creditor that you
will pay all or a portion of the money owed, despite the bankruptcy filing. In
return for keeping your property after the bankruptcy, the creditor promises
that, as long as payments are made, the creditor will not repossess or take back
the property.
Before entering into such an agreement, ask an attorney to ensure that your
rights are protected and that any reaffirmation is in your best interest. If you
are not represented by an attorney in your bankruptcy case, the reaffirmation
agreement will have to be approved by the bankruptcy judge. The judge will ask
questions to determine whether the reaffirmation agreement imposes an undue
burden on you or your dependants and whether it is in your best interests. Since
reaffirmed debts are not discharged, the bankruptcy court will normally only
reaffirm secured debts where the collateral is important to your daily
activities (i.e., a car). In any case, you’ll have a cooling-off period in which
to cancel the reaffirmation agreement if you change your mind.
Reaffirmation agreements are strictly voluntary. They are not required by the
Bankruptcy Code or other state or federal law.
How To Negotiate Home purchase Price
Before making a purchase offer, smart home buyers
ask how much the seller paid for the home and when it was purchased. If it was
bought last year at the top of the market, there is probably zero room for
negotiation unless the seller has a very high motivation to sell.
However, if the home was bought more many years ago, there is probably lots of
seller equity with which to negotiate. This is a perfect occasion for you to get
a lower price since the homeowner has a lot of equity with increased value over
the years.
If the purchase price can't be determined from the public records, and the
seller refuses to tell you their purchase price, an experienced real estate
agent can usually make a reasonably accurate estimate based on the purchase
date. For this reason, it is important for home buyers to always work with a
buyer's agent who knows the community.
When a seller is motivated by a deadline, such as a job transfer date or the
scheduled closing date on another home, such a deadline can be powerful
motivator to sell. In addition, buyers should inquire of their buyer's agent
when the listing expires. If the listing expires in the next few weeks, the
listing agent will usually be extremely cooperative and motivated to get the
home sold fast.
However, if the seller has no specific deadline to sell and is not very
motivated, negotiation with such seller can be more difficult.
December 2006
How to Keep a Clean Credit
Many homebuyers frequently wonder, "If I am shopping for a home loan will my credit be affected each time a credit report inquiry is made?"
It's a great question to ask; the answer is: not significantly, if the credit checks are done in a short period of time.
When a credit check is made by a potential lender it is called a hard inquiry. When a hard inquiry occurs it does have an impact on your credit score. However, when you're shopping for a mortgage, personal loan or a car loan, credit bureaus typically cluster the hard inquiries together because the credit reporting bureaus understand that the consumer is shopping for a loan.
So for example, if you're shopping for a new mortgage and 3 lenders pull your credit score within 36 weeks, that is looked at as one inquiry for that purpose.
Credit Card Inquiries
A credit card company will check your credit
report before it sends you a pre-approved offer. This type of inquiry does not
hurt your credit score. It also doesn't show up when others request your credit
report. Inquiries made by your existing creditors also are not part of your
credit score.
It's only when you apply for a credit that it shows up on your report for
other lenders to see and it does then impact your credit score. So, you taking
the company up on that pre-approved offer will generate an inquiry that impacts
your credit score.
You can opt out of having credit card providers send you pre-approved offers. You
can call (888) 5-OPT-OUT or (888) 567-8688.
Closing Your Credit Card Accounts Can Hurt
Your Credit Score
Closing a credit card account can sometimes be good for your credit score, or
for your intention to stop using credit cards, but it can also affect your
credit score.
Approximately 15% of your credit score is based on the length of your credit
history, so if you cancel older credit card accounts, you may shorten the length
of your credit history, and that may lower your credit score.
In addition to shortening the length of your credit history, by cancelling a
credit card account, you may change the ratio of used credit to unused credit,
which accounts for approximately 30% of your score, and that can ding your score
as well if you're carrying a balance on your other cards.
If you're considering closing a credit card account, make sure you understand
how it may affect your overall credit score.
How is Your Credit
Score Calculated
Here's the formula breakdown:
| 35% of your score is based on your payment history. |
| 30% is based on the amount of debt you owe. |
| 15% is your credit history. The longer you have had credit the better. That's why it's not always a good idea to close credit accounts you've had for a long time. |
| 10% is based on the type of credit lines you have. |
| 10% is based on new credit card accounts. |
You can make a large impact on the score by targeting just one area, your payment history. Pay your bills on time and improve your credit score.
November 2006
Lock That Quote In
Mortgage rates aren't any good if you can't lock them in. No matter what you're being quoted, if the lender or mortgage broker can't lock your rate then beware. If your loan officer can't lock in ultra-low interest rates without such stipulations as "pay me some money then we'll talk," then you'd better watch out.
I've got a funny joke I like to tell that illustrates the old' "bait and
switch."
| A customer walked into a meat market and said to the butcher, "How much is a pound of hamburger today?" |
| The butcher replied, "My hamburger is $5.00 a pound." |
| "$5.00 a pound! Why, the market just across the street sells it for $3.00 a pound!" yelled the customer. |
| "Then go buy it across the street." |
| The customer said, "Well, I can't because he's out of hamburger." |
| "That's nothing" said the butcher, "when I'm out, my hamburger is only $1.00 per pound." |
Conclusion
“There is hardly anything in the world
that some man can’t make a little worse and sell a little cheaper, and the
people who consider price only are this man’s lawful prey.”
"John Ruskin, art and architecture critic"
Should You Pay Off Your Mortgage Earlier?
If you are able to use the mortgage interest deduction on your taxes, then the effective interest rate on your mortgage is somewhere between 60% and 85% of the fixed rate of your mortgage. See Mortgage Tax Savings Calculator to calculate the after-tax rate of your mortgage loan. Your tolerance for risk will determine what you expect to earn, after tax, on your investments.
How To Protect Your Asset When You Die
A type of trust for wealthy married couples that allows a surviving spouse to
postpone estate taxes. A QTIP Trust allows the surviving spouse to make
use of the trust property tax-free. Taxes are deferred until the surviving
spouse dies and the trust property is received by the final trust beneficiaries,
who were named by the first spouse to die.
How To Protect Your Home Against Lawsuits
Information about you and your assets is
available from public records. An investigative firm can easily gather all sorts
of information about you, and the location of your real property you own. Thus
an attorney will be able to tell if the lawsuit is worth taking, based upon the
ability to collect the potential judgment. Be aware that this information is
available to almost anyone who knows how to go about obtaining it.
One key to an asset search is your name. By changing the name of the registered
owner of a piece of property, you can change the ownership records, and your
property will "disappear" from your asset information. Simple changes, such as
recording the name of the owner of a piece of real property from Joe Smith to
Joe Smith Limited Partnership and the true identity of the owner will be more
secretive.
It is important to note that changing the name of ownership may have other
consequences. In some states, if a parcel of real property is transferred to a
family limited partnership, real property tax reassessment will be triggered. So
if Joe Smith transfers his personal residence to the "XYZ Limited Partnership,"
his purpose of concealing the real name of the property owner will be achieved,
but the local tax collector may investigate this change of ownership to see if
his property tax can be increased. So before you change the ownership of your
property, consider the potential consequences.
October 2006
Should You Consider a 15-Year
Mortgage?
1. How Much Will I Save on My Interest Rate?
It is a fact that a 15-year mortgage will provide you with a lower rate.
However, be prepared for a larger monthly payment.
2. Should I Select a 30-Year Mortgage and Make Extra Payments Instead?
A 15-year mortgage locks you into a higher payment. With a 30-year mortgage you
can make extra payments, which will decrease the number of years you have to pay
your mortgage. The end result could be the same as getting a 15-year mortgage if
you put enough towards principal to pay off your 30-year mortgage in 15 years.
You can use a mortgage calculator to find out how much more money you need to
put in every month to pay off your mortgage early.
3. What Is the Benefit of Building Equity?
The benefit of home equity is TREMENDOUS. It provides a ready source to borrow
against. You can use that money to buy other properties and create a passive
income which you will use for your retirement.
4. Should I Use My Home as a Primary Investment?
By obliging in a 15-year mortgage you are investing in real estate, perhaps
leaving less for other other investments. Consult a CPA to find out if you
should diversify your portfolio before making this financial commitment.
Points paid to finance the purchase of a second home must be
deducted over the life of the loan, not in the year in which they are paid.
September 2006
Being swayed by a Real Estate
Agent to use their lender. You are best to look out for yourself, and find
a lender who will look out for you, not the Real Estate Agent. The agent has a
goal to sell the property and get paid, and they are NOT on the buyers side
first, or really at all. With your own lender who cares about your satisfaction
first, you will find information out before closing that may be on the
appraisal, and nothing will be hidden as your lender and their appraiser are not
working for anyone but you. Rate drops will be passed on to you rather
than the Realty agent. Also, kickbacks both legally set up through "Affiliated
Business Relationships" and illegal ones, are usually paid to agents, and it
will be you who ends up paying for it.
Can I Refinance my House and Pay NO Closing
Costs?
If a lender assures you it can refinancing your home with no out-of-pocket expense to you, that doesn't mean it's a nicer source of funds. It is a code for "We're rolling our closing cost fees into your loan". You'll just pay a higher interest rate!!
August 2006
Dos and Donts Before Refinancing
|
Don't change jobs. The longer you are in your current job, the better your application will look to the lender. If you are considering changing careers, try to do so after your mortgage closes. |
|
Postpone major purchases or taking any new loan, such as buying a new car. Keep your debt level as low as possible (50% DTI) until after you buy your house or refinance. Extra debt could hurt your chances of getting a home loan. |
|
Avoid depositing large amount of cash into your bank accounts without clear explanation. Lenders don't like surprises, and may think that money is really an undisclosed loan. |
|
Keep all your bank statements and pay stubs. Most lenders want to see pay stubs for each applicant, showing earnings for the last 1 to 2 months and year-to-date earnings. These must be computer-generated or typed originals that identify the employer and employee's name. |
|
Dig out your tax returns. You'll need last year's W2 and 1099 for each applicant. If you're self-employed, the lender may require your personal and business tax returns for the previous two years and your company's year-to-date profit and lost statement. |
|
Lower your debt. Try to make extra payments toward the principle balance of all your debts. The lower you can make your monthly debt (Debt To Income Ratio, DTI), the better your chance to get a loan and a lower rate. This will help your credit score when you apply for a loan. |
|
Pay all your bills on time. This is not the time to be forgetful with your payments. If you're late with your present bills, an underwriter may presume you'll also be late with mortgage payments, should your loan be approved. |
|
Have evidence that you've paid your rent or mortgage for the past 12 months, such as canceled checks. |
|
Do whatever you can to stay out of lawsuits.
A person involved in a lawsuit is at potential serious financial risk, someone
few lenders will want as a borrower. |
July 2006
Prepayment Penalties on Adjustable Rate Mortgages
No matter which mortgage you choose, make sure you ask about prepayment. If you want to refinance down the road, you don’t want the obstacle of a prepayment penalty to get in your way. Prepayment penalties are not the norm - they are usually associated with higher risk loans with higher interest rates. Basically, if you decide to pay off the loan, they will demand an amount of money as a penalty. This can be a fixed amount or a percentage of your loan. No matter which program your mortgage broker or mortgage website is suggesting, ask about prepayment penalties before you sign. This can mean thousands of dollars in savings down the line.
June 2006
Avoid Needing a Bad Credit Mortgage
Fix Your Credit Now. If you have bad credit, you may get stuck with a high risk mortgage with a higher interest rate, prepayment penalties and high closing costs. The best thing to do is to avoid damaging your credit or to repair it as much as you can before you apply for a mortgage. To fix your credit, begin by getting a copy of your credit report and getting your current FICO score. Make sure all the information on your credit report is correct, and if it isn’t, get it repaired. Then consider consolidating your credit card debt, student loans and the like and always make your payments on time. In time, your score will improve and the money you save by getting lower interest rates will be worth all your work and sacrifice.
April 2006
If you see a company advertising "NO POINTS, NO FEES"
shouldn’t you wonder how they make money? If mortgage brokers don’t charge you
any fee how do you think they are getting paid? You don’t expect anyone to sell
you a loan and work for FREE do you? Do you know any multi-billion dollar
industry who works for free in America? PLEASE READ THE ARTICLE "
March 2006
Dos And Don’ts Before
Refinancing:
Keep your Debt to Income Ratio (DTI) under 50%. LENDERS PREFER NOT TO REFINANCE INDIVIDUALS with debt that are over 50% of their income. That includes any loan, (car, student, credit cards and mortgage).
Example: If your income is $5000 per month, then make sure your mortgage payment , credit card payments, car loan and other personal loans do not exceed $2500. If it does, lenders will be very reluctant to refinance you. That is very much true if your credit score is bellow 620.
February 2006
Dos And Don’ts Before
Refinancing:
|
Not Providing Documents in a Timely
Manner. When your mortgage company asks
you for additional paperwork, ACT IMMEDIATELY! They are trying to get you
approved, not trying to hassle you unnecessarily! Jump through the hoops as
quickly as possible. Borrowers who do not respond to requests for documentation
quickly enough can end up paying higher rates if their rate lock expires. |
|
Not Getting a Rate Lock in Writing. When a mortgage company tells you they have locked your rate, get a written statement which details the interest rate, the length of the rate lock and details about the program. |
How To Better Manage Your Home
Equity
It's not necessary to have a large chunk of equity in your home to benefit from
using your mortgage to create wealth. Many homeowners without a large equity
balance have benefited by simply moving to a more strategic mortgage, which
allows them to pay less to their mortgage company each month, thereby enabling
them to save or invest more each month. For example, a couple who follows
traditional thinking when they buy their $400,000 home. May put 20% down and
takes 30-year fixed rate mortgage at 6.5% on a $320,000 mortgage with a payment
of $2,022.61 per month. This is how the vast majority of Americans would
purchase this home.
However, knowing that most people will refinance every 2, 3 years or will move out every 5 to 7 years you may instead get a 5/1 Hybrid ARM that will be fixed for the first 5 years at a 5.25% rate with a payment of $1,767.05 when you understand the benefits of integrating your mortgage into your financial plan. You move to a more strategic hybrid ARM, option ARM or interest-only mortgage. You keep the same loan balance, but you are able to reduce your monthly payments and save $255.56. You invest the $255 savings each month, and assuming a 7% rate of return, you will have $ 18,617.68 in your investment plan after 5 years and if you keep it for 15 years you will have $81,551.87, which you can use to pay off your mortgage balance or buy an investment property.
Therefore, by simply redirecting a portion of your monthly mortgage payment, you are able to potentially shave years off your mortgage. In addition, you also receive the benefits of having you cash in a more liquid, safer position throughout the process. You may as well buy an investment property and create a passive income. Here is an example of how to create positive cash flow from your new investment.
Let's assume you buy a $250,000 property and put down $80,000.
Your loan will be $170,000 and we'll assume you get a 6% rate on a 15-year loan.
Your new monthly mortgage payment will be $1,434.56. Let's assume you rent your
property $1,800 you will have $350 positive cash flow and that property will be
paid off in 15-years. You will then be able to create an additional $1,800 to
$2,000 when you retire and you will be able to pas on that wealth to your kids
who will be thankful to have parents who decided to leave a legacy to their
children so they do not have to struggle as much as their parents.
Your Real Estate Lending Partner Helping You To Achieve financial Freedom!
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Your Real Estate Lending Partner Helping You To Achieve financial Freedom!
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