Archive for October, 2007
How to manage your piggyback loan
Posted by: | CommentsHow to manage your piggyback loan
Got a second “piggyback” loan on top of your mortgage? Here are three options to help you manage your mortgages.
Piggyback loans were designed to avoid private mortgage insurance (PMI) premiums, which are usually required with any mortgage exceeding 80 percent of a home’s value.
In the most common scenario, the homeowner puts 10 percent down, gets a mortgage for 80 percent of the home’s value, and then takes out a second loan for the remaining 10 percent. Although this second loan generally carries a rate one or two percentage points higher, the combined payment on the two loans may be less than one larger mortgage plus PMI. There can also be a tax break — because the piggyback loan is a second mortgage, the interest may be tax-deductible.
If you bought a home with a low down payment and a piggyback loan, you may have questions about how to manage your second loan in combination with your first. Here are three options that can help you do so wisely:
1. Consider accelerating your payments.
Piggyback loans can be structured in several ways. One popular choice is a home equity line of credit (HELOC), which carries a variable rate that is typically higher than a first mortgage. A HELOC usually requires only small minimum payments, but paying it down more quickly can save you thousands in interest over the long run. If you can afford higher monthly payments or a lump-sum prepayment once a year, put those extra funds toward your HELOC rather than your first mortgage.
Other piggyback mortgages are balloon loans, which carry low monthly payments, but require a large lump sum to be paid at the end of a specified term, often five, seven or ten years. Whether it is wise to make prepayments on a balloon loan depends on the interest rate and length of the term. If the loan carries a high rate and will come due within a few years, knocking down the principal with extra payments is usually wise. However, if your rate is fairly low and the loan does not come due for ten years, you may be better of investing your extra money instead.
2. Look for opportunities to refinance.
Since a piggyback loan typically carries a higher interest rate than your first mortgage, you may be able to save if you can refinance to a single mortgage. Even if you still need two loans, refinancing the piggyback alone may also be an option. You’ll need to take several factors into account:
• Local market conditions. An upswing in house prices in your neighborhood may have bumped your equity above 20 percent, making it possible to refinance your two loans into one.
• Current mortgage rates. Obviously, the time to refinance is when rates are lower than when you obtained your mortgage. If the interest rate you currently have is lower than today’s rates, it may not make sense to refinance. However, even if rates have not dropped significantly, you might consider refinancing your piggyback loan to obtain better terms. If you have a balloon loan that is about to come due for example, you may want to consider refinancing now.
• How long you plan to be in your home. As with any refinance, closing costs eat into your savings, so the longer you put off moving, the more sense it makes to obtain a new mortgage.
3. Consider paying PMI.
If interest rates were to start trending upward, a piggyback loan with an adjustable rate could become costly. Compare your current arrangement to the cost of refinancing to a single mortgage with less than 20 percent equity. You will have to pay PMI, of course, but market conditions (as well as a new tax break that makes PMI deductible for some borrowers) may make this the less costly option.
Dos and don’ts for avoiding foreclosure
Posted by: | CommentsDos and don’ts for avoiding foreclosure
By Brenda Spiering LendingTree.com
Struggling to keep up with your mortgage payments? Worrying about the possibility of foreclosure? Here are seven simple dos and don’ts that can help prevent you from losing your home.
One out of every 134 U.S. homes went into foreclosure during the first half of 2007, according to the RealtyTrac Midyear 2007 U.S. Foreclosure Market Report. That’s a 55 percent increase over the first six months of 2006 and cause for some serious concern. But it also raises the question of whether many of these foreclosures could have been avoided. And, if so, how? In many cases, the answer is simpler than you’d think.
If you’ve fallen behind on your mortgage payments and are concerned about the possibility of foreclosure, the time to take action is now! A few preventive steps can help save your home. Just be sure to avoid pitfalls that can make the situation worse. Here’s a list of dos and don’ts to help fend off foreclosure:
1. Face up to your problem
DO: Admit to yourself that you need to take action.
The biggest mistake you can make is not facing up to the fact that you have mortgage problems. If you’ve fallen behind on your payments (or think you are going to fall behind), you need to create a plan of action to resolve the issue as soon as possible. The longer you ignore your problems, the greater the likelihood you’ll end up losing your home.
DON’T: Ignore those notices you receive in the mail.
The notices you receive in the mail from your lender may offer information about foreclosure prevention options or pending legal options. The sooner you respond, the better.
2. Contact your lender
DO: Contact your lender right away.
Your lender doesn’t want to end up owning your home. Foreclosures can be expensive and it’s in your lender’s best interest to work out a deal. You may be able to negotiate a “forbearance” (a period during which you will be allowed to delay payments until you can get back on track). Or your lender may be willing to set up a repayment plan whereby you can gradually make up the shortfall you owe over a specific number of months.
DON’T: Turn to a firm that promises “foreclosure prevention.”
You don’t need to pay an outside company for help in preventing foreclosure. Be especially suspicious of any firm that promises aid in exchange for your signing over the title to your property. You could end up avoiding foreclosure but still losing your home. Don’t sign any legal form without getting professional help.
3. Read through your mortgage documents
DO: Examine your loan documents.
It’s important to read through your mortgage papers to find out what will happen if you fall behind on your payments. The documentation will stipulate any potential penalty fees you could end up having to pay.
DON’T: Assume you’re protected for a specific time period.
Foreclosure laws and the amount of time you have between defaulting on your mortgage and the start of foreclosure proceedings varies between states. Contact your State Government Housing Office to find out the regulations in your region.
4. Apply for refinancing
DO: Consider mortgage refinancing.
Before you begin missing payments, ask your lender if you can refinance your mortgage with a different type of loan or extend your mortgage term in order to lower your monthly payments. Also, shop around to see what refinancing offers you may be able to obtain from other lenders.
DON’T: Turn to a predatory lender.
Beware of any refinancing offers that sound too good to be true. Predatory lenders sometimes offer mortgage deals that are good for only a short period of time. Switching to such a loan could make your problems worse in the long term.
5. Sell off other assets
DO: Consider liquidating certain assets.
If you have assets, such as a second car that you can sell for cash, consider liquidating them to reinstate your mortgage.
DON’T: Rush to sell assets before you crunch the numbers.
Be careful not to sell assets off quickly at below-market prices before you’ve discussed other options with your lender or confirmed that the proceeds from those assets will be sufficient to cover your needs. Otherwise, you could end up regretting your actions and still end up losing your home.
6. Request a short sale
DO: Ask your lender about the possibility of a “short sale.”
If you’re truly unable to get your mortgage back on track, ask your lender if you can be released from your loan by selling your home via a “short sale.” This involves selling your home quickly before foreclosure. And, even if your home has gone down in value and the proceeds are insufficient to repay your entire debt, your lender may agree to take a loss on your mortgage in order to avoid the costs and delays of foreclosure
DON’T: Neglect to ask if there are any conditions attached.
Your lender may only agree to a short sale on the condition that you’re still responsible for paying back all of the money you owe on your mortgage. In that case, you’ll still end up with the financial hardship of having to make up any potential deficiency not covered from the sale of the home.
7. Offer to sign over the deed
DO: Ask your lender if you can sign over your deed in lieu of foreclosure.
Your lender may agree to accept the deed to your home in order to avoid foreclosure. This can be much faster than going through the foreclosure process and therefore enable you to get on with your life sooner. Be sure to ask if, in exchange for the deed, your lender will be willing to cancel all of your outstanding debt.
DON’T: Wait for your home to be sold at public auction.
At the end of the pre-foreclosure period, your property may be put up for public auction and possibly end up selling for less than market value. If the sale doesn’t provide enough to pay off your mortgage and cover the costs of foreclosure, you may still be held financially responsible for making up the difference.
Digging your way back out of debt is never easy. But asking your lender to help you to structure a repayment plan to avoid foreclosure is well worthwhile. It can mean the difference between saving your home and losing it.
Mortgage tips for people who relocate frequently
Posted by: | CommentsMortgage tips for people who relocate frequently
Relocating again? Consider these tips for staying on top when you buy and sell homes frequently.
People who relocate frequently have special needs when it comes to financing home purchases, especially in today’s real estate and lending climate.
Two major factors for people who relocate frequently to consider are the terms of an adjustable-rate mortgage, and the tradeoff between loan closing costs and interest rates, said Pamela Hamrick, vice president of operations for LendingTree Loans.
Most adjustable-rate mortgages, or ARMs, have an initial fixed rate that adjusts after a set period. In general, the shorter the fixed-rate period is, the lower the initial interest rate. When the rate adjusts after the fixed-rate term expires, the new rate – and therefore monthly payments — can be significantly higher.
The challenge is in matching the fixed-rate term with the length of time you expect to be in the home before relocating and selling, Hamrick said. If the rate adjusts after three years but you stay longer, you’ll be stuck with higher – and potentially unaffordable – payments.
“If you’re really not sure you’re going to move again, that might not be the way to go,” she said.
New considerations
Until recently, homeowners often refinanced to a fixed-rate mortgage before the rate adjusted upward. But Hamrick noted that tighter lending guidelines mean some people who would have qualified for refinancing in the recent past won’t be able to qualify now.
At the same time, the slow housing market is posing challenges for some workers trying to sell their homes when they relocate, Hamrick said. “If you need equity from that other house to buy a new house, it becomes a challenge if you don’t sell it on time,” she said.
Another thing to consider when relocating is whether a working spouse has a job yet at the new location, she said. Lenders consider “trailing spouse” income during the loan qualification process, but it’s just a portion of the previous earnings. Frequent movers who derive a large portion of income from commissions and bonuses may also be challenged in qualifying for a loan, she said.
Weigh costs carefully
People who relocate frequently also need to carefully weigh loans that have no or low closing costs versus those that charge traditional closing costs, Hamrick said.
Loans that don’t charge points at closing – each point represents one percent of the total loan – generally carry a higher interest rate than loans with no or low points. But the latter might make more sense for someone who won’t be in their home long, she said.
Here’s why: Let’s say you saved $2,000 at closing by choosing a $100,000 no-closing-fee mortgage loan. The higher interest rate on this loan means that the monthly payment is $40 more than you would have paid with a $100,000 loan charging two points. That means that in order to make the higher interest rate worth it, you would have to stay in the house long enough to make paying points worth the cost. In this instance, it would take you 50 months (or 4.12 years) to make it worthwhile to choose the loan with the points. ($2,000 (amount paid for points) / $40 (savings per month) = 50 months.)
“After that, it’s really costing you money to have the higher interest rate than to pay the point” at closing, Hamrick said. But people who relocate before hitting that point will save money with the no-points loan.
For help determining whether or not you should pay points on a loan, use the LendingTree Discount points calculator.
Self-employed? Here’s how to weather today’s mortgage market
Posted by: | CommentsSelf-employed? Here’s how to weather today’s mortgage market
Managing your credit, keeping good financial records and documenting your income are crucial.
Self-employed people and others with irregular income could be caught in a squeeze as mortgage lenders continue tightening lending guidelines in response to the problems in the lending industry.
On paper, self-employed people and owners of so-called microbusinesses with 10 or fewer employees can look like credit risks. Their income can vary widely from year to year. Most don’t receive W-2 tax forms, making their income harder to document. And after they deduct business expenses from their income for tax purposes, they can appear to make little money.
With many flexible loans like no-documentation mortgages drying up, self-employed people could find it more difficult to get a home loan, according to Gene Fairbrother, lead small-business consultant for the Dallas-based National Association for the Self-Employed.
“We could move back to the way it was 10 years ago,” Fairbrother said. “If a self-employed individual went to any kind of lender and tried to get a loan for a mortgage, you could have a great deal of difficulty finding a lender that would touch you.”
The importance of good credit
The most important thing is to be sure you have a high credit score, known as a FICO score, said Fairbrother. He advises annually checking your credit reports from the three major credit reporting agencies, Experian®, Equifax® and TransUnion®. Mistakes on your credit report can artificially pull down your credit score.
If your financial habits are pulling down your credit scores, change them now.
“Credit histories are absolutely critical,” Fairbrother said. “If you’re looking at getting a mortgage in the next 90 days, you can’t fix your FICO score in 90 days. It takes six months, nine months, a year.” (For more on raising your score, read our article: Improving your credit score.)
Keep good records
Self-employed individuals also need to keep good financial records, he said. You might need to provide both your personal and your business tax returns when applying for a loan.
If you’re anticipating applying for a mortgage in the next year or two, consider deducting fewer expenses to increase your net income, he added. Lenders usually require self-employed people to provide copies of their previous two years’ annual tax returns.
Scott Keegan, executive director of the National Association of Mortgage Professionals, says lenders now have greater expectations for self-employed people to prove their income. If tax returns don’t do that, consider providing an audited financial statement, he said, although getting a certified public accountant to prepare the statement can cost several hundred dollars.
Fairbrother also advises getting prequalified for a mortgage loan so you’re sure how much house you can afford.
Despite the challenges, the small-business expert notes that he believes self-employed people who handle their finances carefully will still be able to get mortgages.
“I’m not concerned; I think the money is still going to be out there,” he said. “It will be like back in the ’90s when there was a lending crisis. It was a bump in the road, and then back to normal.”
Will the Fed rate cut bring welcome relief?
Posted by: | CommentsWill the Fed rate cut bring welcome relief?
By Brenda Spiering LendingTree.com
After months of gloom about the mortgage market, finally, some welcome news. In an effort to help alleviate some of the negative effects of the problems in today’s housing and mortgage markets, the Federal Reserve recently slashed a full half a percentage point off the federal funds rate, a key short-term interest rate.
But what impact is this going to have on borrowers? If you have an adjustable rate mortgage is the rate going to drop? If you’re looking to buy a home, will you now qualify for a larger loan? And what about credit card rates and other loans?
For some, the Fed rate cut should provide a measure of immediate relief. Others, however, are likely to experience less of an impact. Here’s a brief overview of how it’s likely to affect consumers:
Homeowners
Because most banks have followed the Fed’s lead and cut their prime lending rates, those with adjustable rate mortgages (ARMs) tied to prime should benefit from a reduced rate hike at reset time. However, not all ARMs are linked to the prime lending rate. Those with ARMs based on other indices, such as Libor (the London interbank offered rate), aren’t likely to get the same break. Or, it may take longer for the effect of the rate cut to filter down and impact their particular index.
If you have an ARM, you can check your loan documents to determine which index it’s linked to. You may also want to check the costs involved in refinancing. As thirty-year, fixed mortgage rates dropped in anticipation of the Fed rate cut, it may be a good time to consider converting from an ARM to the security of a fixed-rate loan.
Since home equity lines of credit (HELOCs) are usually linked to the prime rate, rates on these are expected to fall. However, it may take a couple of months before the impact appears on your credit statement. If you have a fixed-rate home equity loan, you might be able to get a better rate by refinancing to a variable-rate HELOC.
Homebuyers
The rate cut is potentially good news for homebuyers as it could stimulate more bank-to-bank lending and increase the amount of available credit on the market. In turn this could make it possible for more people to get loans — particularly among those applying for the recently harder-to-find jumbo mortgages (those that exceed the conforming limit that is currently set. However, long-term fixed mortgage rates tend to track the yield on 10-year Treasury bills rather than the federal funds rate and so they aren’t expected to be directly affected by the Fed rate cut. However, mortgage rates are already historically low and expected to remain fairly stable in the months ahead. This, combined with the recent drop in housing prices in many parts of the country, makes now a good time to be shopping for a home.
Savers
Rates on most savings accounts, money-market accounts and certificates of deposit (CDs) typically track the prime rate and have already started to fall. In the case of some CDs, where the advertised rates have remained constant, the maturity dates have been shortened so their locked-in rates are available for fewer months.
If you were fortunate enough to have purchased a CD prior to the rate cut, try to hang onto it as long as possible as you’re unlikely to be able to quickly replace it with another one at the same rate. Or if you have some money you’re looking to invest, you may want to lock it away in a CD as soon as possible since some economists are predicting a possible additional quarter-point rate cut in the months ahead. Shop around and compare rates to be sure you’re getting the best available deal.
Credit card customers
Overall, variable credit card rates are expected to fall. However, individual rates depend to a great extent on your own credit history so you may not see a drop in your own rates until you demonstrate a consistent track record of reliable payments. Lower bank rates, however, mean now is a great time to shop around for a less expensive credit alternative. You may be able to save a considerable amount in interest charges by paying off your credit cards and combining your payments with a low-interest debt consolidation loan.
Student loans/auto loans
Those with variable rate student loans tied to the prime rate should benefit from the rate cut. However, as with ARMs, those with non-prime-based student loans may not see their loan rates decline. New car loans based on manufacturers incentives are not expected to drop since those rates are already artificially low. However, rates should drop on both new and used car loans available through banks and credit unions.
It’s going to take a while for the full impact of the Fed rate cut to trickle down and affect many loan products. However, many economists are hailing the lower rates as a step in the right direction.
Marketa Muhlhoferova to lead Investor Relations of the Home Credit Group
Posted by: | Comments12.10.2007 – As of October 2007, Marketa Mühlhoferova leads Investor Relations for the Home Credit Group. Marketa Mühlhoferová has joined Home Credit from the Investment Banking team of Česká spořitelna.
Commercial Property Mortgages.
Posted by: | CommentsWhether you need to finance a multi-unit apartment project, an office building, a retail plaza, a healthcare complex or a manufacturing facility, Commercial Mortgages can assist you in finding the right loan at the right price for any type of commercial property anywhere in the USA. Commercial mortgage loans can be closed in as little as 5 to 15 days at loan amounts up to the $100,000,000 range. Commercial mortgages are available in all 50 states. To start your query for commercial property mortgage financing, click here.