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Tax Advantages of Having a Mortgage

We all hate paying taxes, but unfortunately it’s a necessary evil of our society. In order for state and local goverments to function properly our tax money is needed. I’m not sure they really need as much as they take, but that’s another debate and another blog. Paying taxes obviously isn’t fun so you need to take advantage of any way you can to reduce your tax bill.

One way to reduce your tax obligation is to claim the interest on  your home mortgage. Peak Personal Finance gives a great, breif explination of the tax advantage of having a mortgage. Not only can you deduct your monthly interest paid on  your home mortgage but you can also deduct points paid at closing.

If you are having trouble deciding if you should buy or rent a home you may want to consider all the advantages of owining your own home and give Peak Personal Finance a quick visit and learn more about the tax advantages of having a mortgage.

Should I Stop Paying My Mortgage?

A record number of foreclosures have hit the banks in the past couple of years and just when the banks start to see relief more foreclosures pile up everyday. Number 8 on the list of highest foreclosure rates in the United States is Michigan. Today I read an article from Michigan Mortgage Attorney . They ask the question “Should I stop Paying my mortgage?”

It’s very tempting to stop paying your mortgage especially if you are in the situation that many Michigan home owners are in today. House values in the United States have plummeted in the past two years. Many home owners owe much more than their house is actually worth and there is no relief in the housing value market in sight. Many home owners owe 2 or 3 times more than their house is actually worth. It seems like they are fighting a losing battle with their mortgage. Should they just walk away?

I agree with MichiganMortgageAttorney.com in the fact that I don’t they it’s the right thing to do. If you can pay for your mortgage then you have an obligation to fulfil the promise you made to the bank or mortgage company. When you purchased your home you signed a legal contract stating that you would pay x amount of dollars over then next x amount of years. The bank or mortgage company in turn trusted you to fulfil your obligation.

I do however realize that times are tough and sometimes paying your mortgage payment isn’t an option. There are other alternatives to paying for your home other than just walking away. Many banks and mortgage compnies are very willing to work with interest rates and financing terms so you can keep your home and fulfil your mortgage.

If you have not yet purchased a home please keep this information in mind when signing on the line for your mortgage. Make sure all your personal finances are in order and always have a backup plan. Your mortgage is probably the single most important financial decision you will make so make sure you are ready to take the leap.

Using your home for debt consolidation

Ever wonder how debt consolidation works? Should you use your home as collateral to consolidate debt? With the rising costs of everyday life many Americans are looking for ways to lower debt and reduce their monthly expenditures. Many people are turning to professional help such as debt consolidation loans. One of the most popular ways to consolidate debt is using your home as collateral for the loan, but is this a good idea?

With the growing number of television, Internet and newspaper advertisements for debt consolidation loans it may seem very tempting. Debt consolidation companies promise to lower your monthly payments or even eliminate your debt all together. Again it sounds very tempting, but you should be aware of exactly what is going on behind the scenes.

When you contact a debt consolidation company the will usually ask you a series of questions concerning your home. The will want to know how much your home is worth and how much you owe on your home in order to find out how much equity you have in your home. The reason they want to know this is because they are planning on turning all your unsecured debt into secured debt by using your home as collateral.

Using your home as collateral will usually lower your interest rates considerably and in turn lower your monthly payment, but there are some serious concerns to consider. First, if you find yourself in more financial trouble in the future and can’t make the new consolidated payment you will be at risk of losing your home to foreclosure, in turn making your credit and life much worse.

The second thing to consider is that most of us spend as much money as we have every month. Freeing up extra dollars per month after debt consolidation means we have more money every month to spend on other things, things we don’t really need. This in turn causes the debt process to start all over again and you will be in much worse shape than you were before you started the debt consolidation process.

There are some instances where debt consolidation can be very helpful, but you must be a disciplined person willing to make financial sacrifices in order to better your situation. Also make sure the debt consolidation company has your best interests in mind and not their own financial gain. Do some research on any company before you give them any personal information.

Piggyback Mortgage Loan Information

A piggyback loan is a mortgage loan in which the financing is handled by two different lenders. The first lender finances a large portion of the loan, usually 80% and another seperate lender finances the remaining balance of the loan. There are three common options of piggyback loans, 80-10-10 loan, the 80-20 loan (also known as the 80-20-0 loan) and the 80-15-5 loan.

An 80-10-10 loan is when the first mortgage finance company finances 80% of the loan amount, the second finance mortgage company finances 10% of the loan balance and 10% of the balance is paid down by the purchaser. The 10% financed by the second lender is basically a second mortgage on the home.

An 80-20 loan is when the first mortgage finance company finances 80% of the loan amount and the second lender finances the remaining 20% of the loan as a second mortgage. No down payment is paid by the borrower or there is already some equity in the home.

The final typical type of piggyback loan is the 80-15-5. The first lender finances 80% of the mortgage balance. The second lender finances a second mortgage for 5% of the loan amount and 5% of the balance is paid down by the buyer.

The biggest pro of a piggyback loan is that 20% of the home value is paid for through a down payment or by the second lender. This means that the first mortgage lender doesn’t charge PMI or private mortgage insurance. Private mortgage insurance is a third party insurance required by lenders if you do not have 20% equity in your home. It protects lenders from borrowers in case they file bankrupsy. A piggyback loan reduces the loan risk of the lender because they aren’t financing the entire amount. Avoiding PMI can save you hundreds of dollars per month depending on the equity and financing terms.

There are three major cons of a piggyback loan. First, you already have a second mortgage on your home. If you ever have an emergency where you need to use your home as equity it will be very difficult since you already have a second mortgage on your home. The second major con is that the second mortgage will haev a higher interest rate than a normal loan with PMI. Sometimes the interest rate can be 2% or 3% higher. Even though your monthly payment may be lower you will end up paying more for the loan in the end. The third major con is that PMI drops off after you have 20% equity in your home. This could happen quick if you overpay your minimum monthly payments. If you don’t have a piggyback loan your payment will decrease once PMI drops off, with a piggyback loan you are stuck with the second mortgage payment until it’s completely paid off.

In my oppinion in most cases you are better off to avoid a piggyback loan. Even though you will have a smaller monthly payment up front you will pay more in the end. Do the math for you own individual situation before you close the loan!

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.

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.

Reasons you may want to refinance your home

Interest rates are still very low compared to a decade ago. Average mortgage interest rates continue to stay around the 6.5% mark for the 30 year fixed loan. You may have thought about refinancing your home loan before, but just never got around to following through, or maybe you just didn’t know if it would be in your favor. Everyone’s financial situation is different and you should consider many different factors before you decide to refinance. Some factors to consider are your financial goals, your current interest rates, the currently type of mortgage loan you have, and how long you want to stay in your current home. After you consider these factors here are 5 instances when you may want to consider refinancing your current home mortgage loan.

Refinance from an adjustable rate mortgage (ARM) to a Fixed-Rate Mortgage

An adjustable rate mortgage is a type of mortgage loan that is fixed for a certain amount of time, usually 3, 5, or 7 years. After that time period the rate adjusts usually according to the current prime rate. The interest rate can continue to rise with the prime rate up to a certain percentage. The advantage to an ARM loan is a lower interest rate and payment for a short period of time. If you had an arm loan a couple of years ago with a really low interest rate and that term is expiring you may want to refinance your mortgage loan into a fixed-rate in order to avoid the rising interest rates.

Refinance from a fixed-rate mortgage to an ARM

A fixed-rate mortgage is a loan for a certain time period, usually 15, 20, 25 or 30  years. The interest rate is fixed for the entire period of loan. This is a great deal if interest rates are low when you lock the rate, but bad if the rate you have is much higher than current interest rates. A good time to refinance your fixed-rate mortgage to an ARM loan is if yo are planning on moving in the next 3,5, or 7 years and interest rates are much lower now than your current fixed rate. You can take advantage of the lower interest rates and then purchase your new home before the rates start to rise.

Lower your monthly mortgage paymnet

You may want to consider refinancing your home mortgage loan to lower your monthly mortgage payment. Even the smallest drop in interest rates can change a monthly mortgage payment significantly. For example lets assume you borrowed $250,000 on a home 5 years ago at 7.5% for 30 years. Today interest rates have dropped to 6.25% and you want to consider refinancing the mortgage.  Your original mortgage payment would have been around $1750, your new payment would be $1435 a savings of about $315 per month. I’m assuming you paid your exact payment for 5 years so you would only refinance $233,000. There are other factors to consider such as closing costs but some simple math can save you some money in your monthly budget.

Getting cash from your home for improvements or additions

Wanting to finish the basement, add on a patio, screened in porch or swimming pool? Where will you get the money to do these projects? A great option is a home equity loan. If you got equity in your home you can take out a second mortgage on the house to finance the other projects. Not only will you get a better interest rate than a credit card but the loan is also tax deductible.

Consolidate high interest rate credit card debt

If you’ve got yourself into more debt than you can handle it’s possible to take out a second mortgage on the house to consolidated high interest rate credit card debt.  I’m not a big fan of this method because most people who choose this option will use the credit cards again. Be very careful when taking loans against your home it’s your prized possession and mortgage companies won’t hesitate to take it away from you.