Archive for August, 2008

Negative Amortization Mortgage Loan Information

A negative amortization mortgage loan or NegAm as it is sometimes refered to is basically when aloan payment for any period not enough to cover the interest charged over that period of time. This causes the outstanding balance on the loan to increase instead of decrease with each payment made. This type of loan is most often used as a mortgage loan by a corporation, and are sometimes referred to as PIK loans. Negative amortization mortgage loans usually only have this negative amortization schedule as an introductory period and once it expires a larger payment must be made in order to avoid default on the loan.

The purpose these types of loans are usually for advanced cash management or short-term payment flexibility. Negative amortization mortgage loans are not set up or desigend to make a mortgage more affordable. Usually the introductary negative amortization period is no more than 5 years and at this time the loan must be “recast” or setup on a fully normal amortization schedule.

Reverse Mortgage Loan Information

A reverse mortgage is a mortgage loan or lien against your home that you do not have to pay back for as long as you live there. It’s similar to a home equity loan in the fact that you are taking equity out of your home in the form of cash. You can get the cash out from a reverse mortgage in several different ways:

• a single lump sum of cash paid at closing;
• a regular monthly payment made to you in the form of a cash advance;
• A credit line somewhat like a HELOC;
• Or a combination of any or all of these;

Pros of a Reverse Mortgage

• No Credit Check;
• No income needed;
• Can’t lose your home because you miss payments;
• You never have to repay the loan;

Cons of a Reverse Mortgage

• Create debt against your home and decreased equity in your home;
• Additional fees on top of normal closing costs;
• You have to completely own your home;
• You have to be at least 62 years of age to do this;

When should you consider a reverse mortgage? If you are not facing a financial emergency now, then consider postponing a reverse mortgage. Reverse mortgages are a very expensive way to get cash. Most lenders tack on additional fees on top of normal closing costs. The fees can be as much as 4% of the loan on top of normal closing costs.

Before you decide to opt for a reverse mortgage make sure you understand all the details. Do your homework and make sure you understand exactly what you are doing.

ARM loan mortgage – Adjustable Rate Mortgage

An adjustable  rate mortgage, commonly refered to as an ARM loan is a loan where the interest rate adjusts periodically based on a variety of indicies. There are different variations of an ARM loan some of which have a fixed rate for a certain period of time such as 3, 5, 7, or 10 years and after that period it turns to an adjustable rate and floats based on certain indicies.

There are also many other forms of an ARM loan including interest only ARM, balloon rate ARM, and negative amortization ARM. All of these types of loans have pros and cons, it’s knowing when to get the appropriate loan at the appropriate time that saves you money.

As mentioned earlier usually there is an initial interest rate for a certain period of time, usually 3, 5, 7, or 10 years. After this time period has expired the interest rate is adjusted based on the certin indicies.  There are caps on ARM loans interest rates which are usually about 5%  on top of the initial interest rate. So if your initial rate was 6% the most it could increase would be to 11% (pretty expensive if you ask me).  There is also usually an option to turn the ARM mortgage to a fixed rate for an additional fee. There is usually a prepayment fee on ARM loans as well.

A great time to consider an ARM loan is when you plan to be in your current home for less than 3 or 5 years and current interest rates are low. You can do an ARM loan for 3 or 5 years and the rate will be fixed for that amount of time and take advantage of the lower rate. When you are ready to move in 3 to 5 years you will be able to sell the house and purchase your next house and start the process over. You won’t even have to worry about the variable or floating interest rate.

HELOC or Home Equity Line of Credit

A home equity line of credit or HELOC as it is commonly referred to is simply what it says. It’s basically a line of credit similar to a credit card which allows you to use your home as collateral. This gives you a better interest rate on the loan than a credit card, but puts your house as risk instead of just your credit score.

Usually HELOC’s are taken as second mortgages on your primary residence. At the time of closing the lender sets a specific credit limit on the loan based on the equity you have in the home. For example if your home is valued at $200,000 and you currently have a mortgage of $150,000 on the home you have about $50,000 equity in your home. Many lenders will let you borrow up to 95% of the value of the home so your line of credit may be as much as $47,500.

Once the HELOC is established you can usually write checks from the account, use a special type of card similar to a debit or credit card, or other methods to withdraw money from the credit account.

The interest rate on a HELOC is a variable rate and the terms of the loan are established at the time of closing. Terms can be extended as much as 30 years so payments on the loan are lower.

An alternative to a HELOC is a simple second mortgage which is the same pricipal except you get the money in a lump sum. The interest rates can be variable or fixed and terms can be about the same as a HELOC.

As with any type of loan there are advantages and disadvantages. The advantages of a HELOC is the flexibility of having extra money avaliable at a moments notice with a lower interest rate than a cash advance on a credit card. You only have to withdraw the exact amount from the account, thus paying interest  only on the amount you borrow. Also closing costs or up front costs are usually much lower than a second mortgage.

There are of course disadvantages or risks involved with a HELOC. Disadvantages of a home equity line of credit include rising interest rates from month to month. Since the interest floats or is variable it can increase a certain amount each month causing your payments to inflate each month. There are very large caps on the interest rates on a HELOC. Most max out at or above 18%!

Fixed rate mortgage loan information

Fixed mortgages or fixed rate mortgages are loans that have an interest rate that remains the same throughout the entire term of the loan. Adjustable rate mortgages or arm loans have interest rates that “float” or adjust according to current prime interest rates.

There are different variations of fixed mortgages which include different terms (how long the mortgage is financed for). Common terms for fixed rate mortgages are usually multiples of 5 and include 30 year, 25 year, 20 year, 15 year, 10 year and 5 year terms. Usually choosing a shorter term for the fixed mortgages will produce better interest rates.

There are even more variations of fixed mortgages which include balloon loans, fixed rate interest only mortgage loans, and ARM loans can even have fixed rates for a certain period of time and then adjust after that time expires.

When to have a fixed rate mortgage

You should opt for a fixed mortgage when interest are low and you plan to stay in your home for an extended period of time or if it’s your final home.

When to not have a fixed rate mortgage

If you only plan to stay in your house for a few years then a fixed rate mortgage may not be the best option for you. You will get a better interest rate on a vairable rate loan or an ARM loan than a fixed rate mortgage loan. A ARM loan is a great option if you only plan to stay in your home for 3 – 5 years or less.

Land Loan Mortgage Information

Land loans or land mortgages are designed for borrowers who are planning on building a home but aren’t ready right now. They are planning on building their own home in the near future and at that point will be looking for a construction loan.

Mortgages on Land loans are usually not as easy to obtain as a mortgage loan on a home. Usually interest rates are also slightly higher and financing terms are not as flexible. Many times interest rates will be 2% or 3% higher than a home mortgage interest rate and you won’t be able to get a 30 years fixed interest rate land mortgage. Many lenders will also require a down payment of at least 20%.

The reason for the restrictions is because the loans are much riskier for the lenders. The loan’s collateral, the vacant land, isn’t currently being used for anything. If you don’t have a house on the property you’re not as motivated to make the monthly payment. If the land gets foreclosed on you don’t really lose anything except what you’ve paid into the property.

The good concept of purchasing land is that the’re not making more of it. More than likely land will only appreciate in value as time passes. Purchasing land now may be the smartest investment you can make.

VA Home Loan Information

A VA loan is a type of mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs.  VA loans are designed to offer financing to American veterans or their surviving spouses. The goal of VA home mortgage loans is to make the lending process more available to veterans and easier financing options. VA loans are offered in areas where private financing may not be avaliable, such as rural areas and small towns. They also allow the borrower to purchase a property with no down payment.

As mentioned earlier VA home mortgage loans allow the veteran to finance 100% of the home without paying private mortgage insuracne (PMI) or without having to use other creative financing methods such as piggy back loans or 2nd mortgages.

The major drawback to a VA loan is a funding fee is paid directly to the VA. This fee can range from 0 to 3.3% of the loan. This amount can be financed in with the mortgage loan but could be a hefty chunk if the loan amount is large.

FHA Home loan information

FHA home loans are a great way to purchase or refinance your next home. When it comes to mortgages there many different possibilities for financing. The best way to decide which type of loan is best for you it to be informed and educated about all the different types of loans available (FHA and Conventional). Here is some valuable information about FHA home loans.

A FHA home loan is a mortgage that is insured by the Federal Housing Administration, a United States government agency.  FHA loans were designed by the government to allow lower income families an opportunity to purchase a home. Today FHA home loans allow borrowers to purchase homes with smaller down payments, less than perfect credit and higher debt to income ratios. There are disadvantages of FHA loans including PMI or mortgage insurance, more strict property requirements, maximum amount a loan can be, and possible additional income tax penalties if you sell the property too soon.

Before you decide which type of loan to pursue consider all the pros and cons of each type of loan.

Conventional loan

Conventional loan defined
 A conventional loan is basically any mortgage loan that is not insured by the federal government or the FHA (the Federal Housing Administration). A conventional loan was the first type of traditional mortgage loan made by lenders. It was basically a fixed rate mortgage for the entire period of the loan. Lenders basically loaned the money to borrowers and the loan was kept open until the loan was paid in full. It was a great way for the borrower to create a relationship with the lender, but often times weren’t the best financial move for lenders. If interest rates rose, lenders were stuck receiving a lower return rate on their money.

Types of conventional loans
There are many types of mortgage loans that are considered conventional loans. A few examples include conforming loans, nonconforming loans, and jumbo loans. A conforming loan is a mortgage loan that conforms to GSE guidelines. Nonconforming loans fall outside the GSE guidelines because of bad credit, lack of collateral backing the loan, or the loan is over a certain amount of money. Finally, a jumbo loan is a loan that large to be financed by normal mortgage trading companies. This amount is currently just over $400,000.

Pros and Cons of Conventional Loans

Pros

• Lenders will be more flexible with lending fees
• The lender may take into consideration other collateral other than the property being mortgaged
• A lender may consider other personal property included in the property as part of the home value
• Appraisals will be more lenient
• The lender may self insure the loan
• A higher interest rate may be considered in exchange for lower closing costs

Cons

• Usually require larger down payments
• The lender sets their own interest rates
• Though lenders can be flexible with lending fees they can also charge more
• There may be some fees associated with paying off the loan early
• Require PMI if the LTV (loan to value) is greater than 80%
   

Other mortgage loan options other than a conventional loan

FHA loans are non-conventional loans. FHA loans are insured by the federal government and have many advantages over conventional loans. FHA loans usually require lower down payments, have more flexibility when it comes to the borrowers credit scores, and have lower PMI or private mortgage insurance.

Awful credit mortgage refinancing

Sometimes due to unforeseen financial expenses you could fail to make the payment on mortgage loan and in such case, Mortgage Refinancing would be the best alternative. If you are looking for a mortgage refinance and have poor credit then you will probably have to borrow from a subprime mortgage lender. Subprime lenders specialize in writing mortgages for people with poor and bad credit.

It is possible to get a mortgage loan or refinance loan with poor credit, but you need to be very selective when choosing a subprime mortgage lender. Some of them will take advantage of your situation and overcharge you for the loan. Here is some important information to know before selecting a lender.

Your mortgage lending options are going to be limited. You already have poor credit so most mortgage lenders and banks aren’t going to be willing to give you another loan. There are some mortgage lenders who specialize in these types low and bad credit loans.

How to Get a Bad Credit Mortgage

Even though the subprime mortgage market has taken a major finaicial hit these days there are still subprime mortgage lenders that can be easily found on the interent. You are obviously going to pay a much higher interest rate than someone with good credit so be prepared to face this. You must shop around for the best rates and fees to make sure the lender is not trying to take advantage of your situation. A mortgage broker may be your best solution. Mortgage brokers have a wide variety of options that you may not be able to find with your own searches.