If you have a loan for $200,000 on a 30 year fixed rate of 6.5% then you will pay out $255,085.82 in interest if you pay only the minimum payment. By setting up a biweekly payment plan you will pay out $194,430.48 a savings of $60,655.34. You will also pay off the loan almost 7 years early. This assumes that you don’t have to pay a setup fee and you are not paying a monthly service charge for setting up biweekly payments as I mentioned earlier.

It’s still true that you will save money and pay off your mortgage quicker even if you use a third party company to setup biweekly payments and pay a fee, but remember you can do this yourself. Just pay 1/12 of your payment extra each month or an extra payment at the end of the year and you’ll get basically the same result. So to answer the question I think paying off a mortgage quicker and savings thousands of dollars is for everyone!

Conventional mortgages allow for more financing options over VA and FHA loans. Fore example not only do they offer fixed rate mortgages but there are also various adjustable rate mortgages (ARM) and biweekly payment options available.

Because conventional loans have less strict guidelines they offer many other advantages such as underwriting flexibility, cheaper loan fees, less collateral, more lenient appraisal guidelines, and possible lower closing costs.

If a lender decides to keep the loan in their own portfolio they can offer more underwriting flexibility. Since the loan won’t be sold in a secondary market those guidelines won’t have to be met. This makes getting a loan easier with less than perfect credit.

Lenders may also discount certain loan fees or even waive them in certain cases. Since the lender will be keeping your loan they may discount loan fees in order to get your business.

Conventional loan lenders will sometimes let you use other items in the house as collateral. For example including appliances and furniture may be an option.

FHA and VA loans require strict appraisal guidelines. Conventional loan appraisals are much more flexible and only have to meet the lenders restrictions.

Finally, sometimes lenders will pay a portion or all of the closing costs of a conventional loan in exchange for a slightly higher interest rate. This allows someone who doesn’t have a lot of cash on hand to still purchase a home with less out of pocket money.

As you can see there are many advantages to conventional mortgage loans. Before you decide which type of loan to choose review all of your options. Everyone has a different financial situation so a conventional loan may not be your best option. Research other types of loans before making the final decision.

When you refinance your home there are many fees involved that must be considered along with the lower rate. There are many fees that are mandatory before you can close the refinance loan and these little fees can add up to a large chunk of money at the end. Typical refinance fees include: application fee, title search and title insurance, appraisal fee, survey costs, hazard insurance, attorney’s fees, home inspection fees, loan origination fees, mortgage insurance, prepayment fees, flood certification, interim interest, and discount points.

An application fee is charged by the lender which covers their cost to process the loan. Usually this fee is paid up front and ranges from $75 to $300. Most lenders apply this cost to the final loan. Usually this fee is non refundable even if you are not approved for the loan.

A title search is required even though one has already been performed on the home. A title search is a review of the historical record associated with the property. This includes items such as property and name indexes, deeds, court records, etc. The lender does a title search to ensure that the buyer is purchasing a house from a legal owner and there are no liens against the home. In the case of a refinance loan they want to make sure you own the home and they are aware of any outstanding liens or loans on the home. 

The lender needs to perform an appraisal fee to make sure the value of the home will stand good for the loan amount. Today many lenders will only loan an amount equal to 80% and 90% of the home value. About a year ago many lenders would loan over 100% of the home value, but times have changed. For example if your home is appraised for $200,000 then a lender who lends 90% of the value would only loan $180,000 toward the home. This means if you owe more than $180,000 then you could not refinance the home. Typical appraisal fees range from $150 to $400 and vary based on the value of the home.

Sometimes lenders require a survey on the property before you can refinance a loan. This is to make sure you have not crossed any boundaries of the property while you have lived there. This cost can range from $200 to $400 depending on the size of the property.

Hazard insurance costs are included in closing costs. It’s mandatory to have hazard insurance on the property before a loan can be acquired. Most lenders requrie these to be prepaid thus they are included in closing costs.

Attorney’s fees must be paid at closing to cover any work the attorney does for the loan. Usually these fees range from $50 - $200.

Sometimes lenders a new home inspection before you can refinance the loan. This is to make sure the home is still in good shape in case you were to default on the loan. Home inspection fees usually range from $150 to $400.

A loan origination fee is a fee charged by the lender for preparing, evaluating and submitting a proposed mortgage loan. Most of the time these fees are expressed as a percentage of the loan amount.  A typical loan origination fee is about 1% of the loan amount.

Mortgage insurance or PMI is usually required by lenders if you need a loan for more than 80% of the homes value. This can be charged on a monthly basis or as a lump sum at closing. If it’s paid in closing it’s typically 1/2% to 1% of the loan amount.

A tricky fee that is often overlooked is a prepayment fee. If you pay off the loan before the end of the term you will be charged a fee. This fee can vary by states but should always be presented to you at closing.

A flood certification fee is a small fee, usually less than $50. It’s required by most insurance companies to ensure the home is not in a flood plain.

Interim interest is the amount of interest that has accrued from closing date until the end of the month. This can be a large sum if you close at the first of the month.

Finally, discount points is a percentage amount that is typically 1/2% to 1% of the loan amount. This fee is used to reduce the interest rate of the loan. This varies by bank but an example would be paying 1 point (1% of the loan amount) to reduce the interest rate 1/4%.

As you can see there many fees associated with closing a loan. Be sure that these fees don’t add up to more than you will save over the time you expect to keep the loan. Just because you are getting a smaller monthly payment doesn’t mean you are actually saving money!

Over the past few months home values have took a major decline, bad for home owners, but very good for someone looking to purchase a home who doesn’t already have one. Not only do you have your choice of home, but you also have a lot of power when it comes to buying a home. Many homes are for sale by banks and mortgage companies who are looking to liquidate their assets as soon a possible and are willing to take pennies on the dollar to get rid of the homes. Other families are faced with foreclosure and are willing to take a loss on their home in order to save their credit. Others may have already purchase another home in hopes of selling their current home only to find the demand for housing has greatly decreased, leaving them stuck with two mortgages. No matter the case now is a great time to find a deal on a home.

Before you make any offers, shop around for the best deal. Also make sure you can afford the house you are looking to purchase so you don’t end up in the same situation as the person you are buying the home from. Take advantage of a down market and make a smart investment!

Construction loans still offer different loan types as well as different financing terms. Typical construction loans include the 30 year fixed, 15 year fixed, 1 year ARM, 3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM and interest-only loans. You can also get a short term loan usually one year while the house is under construction and then refinance into a lower interest rate term once construction is complete. This however requires two loan closing, in turn costing you two sets of closing costs. A more popular construction loan today is known as a construction to permanent loan. This type of loan only charges you 1 set of closing costs.

Before you get a construction loan you will have to get pre-qualified for the loan just like you would a regular mortgage loan. Also, just like a typical mortgage the better your FICO score and the more equity you have in the land you are building your home on will determine what type of interest rates and how much you can borrow.

Another thing to understand about construction loans is that you have to start making payments on the loan before your house is completed. This can be done by simply making the monthly payment or by setting up an interest reserve fund. An interest reserve fund basically pays your monthly payment for you while your land is being built. It’s not a free service however, this amount is added back into the loan. Basically the bank estimates how much your interest will be over a year and adds that amount onto the loan. This does however help the consumer if they are paying rent or another house payment while their home is being buit.

The creation of PMI has allowed many buyers to purchase homes that normally would not be able to own their own home. For as little as 3% to 5% down potential buyers can purchase a home without having to save for a large down payment.

One important aspect of PMI you should always keep in the back of your mind is that once you have 20% equity in your home you are no longer required to pay this insurance policy. Some lenders require this 20% to be from the original purchase appraisal and others will allow a new appraisal amount at the current time. This is a big benefit if your home has increased in value over a short period of time. Usually you will have to contact the lender once you have 20% equity in your home in order to cancel the PMI. However, usually lenders are required to automatically terminate PMI once you have paid down the mortgage to 78% of the original apprasial value.

There are ways to avoid paying PMI. The first and most obvious is by paying down at least 20% of the loan at the time of purchase. The second method is a piggy back loan or taking out a second mortgage at the time of purchase. Before you choose an option consider the pros and cons of each type of loan.

Why pay points toward a mortgage loan? Usually paying points lowers the interest rate you get on the loan. Before paying points you should always calculate if it’s worth the extra cash to get the lower interest rate. A simplified, real world example would go something like this.

A local movie rental business is offering a special promotion on various memberships. Regular movies cost $3.50 to rent per night, but with these new memberships you get special discounted rates. A gold membership costs a one time payment of $100 and it allows you to rent unlimited movies forever for only $1. You could quickly do the math ($100 / $2.50) and find out that it would take you 40 movie rentals before you started seeing real savings but from that point on you would save $2.50 off every movie you rented.

There are many things to consider before taking the deal. What if you only rent 1 movie per month? It would take you over 3 years before you started seeing any savings. What if the movie rental place went out of business? You would wast the one time payment. What if you move far away from the movie rental place? You might have to spend more in gas to get to the movie rental place than you would save from the movie rental deal.

Just with the movie rentals you have to decide how long you expect to stay in your home. If you are only planning on staying a couple of years, it’s probably not worthing paying the extra points. On the other hand if you plan to stay in the home 10 or more years you will probably save money by buying the points and paying the extra up front money.

Here is a great mortgage point calculator that will help you decide if paying the points is worth it for your situation.

Many financial experts agree that mortgage buy down programs are a bad investment, but I believe for some it may be an acceptable option. Buy down programs allow you to take advantage of the equity you have built up in your home and provide yourself a steady monthly income. You get a monthly payment sent to you each month until you have no equity left in your home.

The MAJOR downside to this program is in the end the mortgage company will own your home. Typically you will not have to give up your home while you are still living, but when you die the home basically goes back to the mortgage company.

As stated above this type of program can be an acceptable option if you have no other means to generate income and you don’t care what happens to your home when you die. If you have put everything you own into your home over the years and it’s basically all you have then you can view this type of reverse mortgage as something similar to your retirement program.

Again, I tend to lean toward the side stating that mortgage buy down programs are a bad investment and you should never plan to use this type of program as a retirement plan especially if you are young and still working. Take full advantage of your working years and put away plenty of money for your retirement years. Use a mortgage buy down as a last resort option for getting cash!

First, when you contribute to your 401k fund you do so with pre-tax dollars. You are required to pay back the loan and that money will be with after tax money, that money will be taxed again when you decide to take it out at retirement.

Second, if you borrow from your 401k then many lenders will view this as an additional debt, just like a car loan or credit card loan. This could hurt your debt to income ratio, in turn giving you a higher interest rate on your mortgage loan or reducing the amount of money you can borrow for a home.

Third, as mentioned above this will become another monthly debt and you will be obligated to repay the 401k loan, usually over a course of time shorter than the mortgage loan. This payment will be in addition to the mortgage payment, which could put an extra strain on your monthly budget.

Next, you could have to repay the loan early if you lose your job for any reason. There is usually a clause in the 401k loan documents that requires you to repay the loan in full within 30 days if you leave your job for any reason or you are fired. If you don’t repay the loan you will face early withdrawal penalties of 10% as well as having to pay income taxes on the money. This will not only put a strain on you now, but will destroy much needed funds for your future.

Finally, some 401k funds will not allow you to contribute extra funds toward retirement until the loan is paid back in full. Not only does this limit the growth potential of your normal deposit, but you also lose any matching funds from your employer.

If you are going to need to pay money down for a new home there are other alternatives. Cut back spending and save the extra cash, pick up a part time job, look into a piggyback mortgage, etc. Avoid borrowing from your 401k at all costs.

When discussing a mortgage potential buyers tend to focus on how to qualify for the most money and keep their monthly payments as low as possible and what is the lowest interest rate they can get on the mortgage. These are two very important factors, but not the only choices to make.

The term or length of time you will pay back the borrowed money is a very crucial part of a mortgage. Choosing the right term can save you hundreds of thousands of dollars as well as build equity at an accelerated rate.

The longer term you choose the more total interest you will pay and the less equity you will build each month. Sure you will have a lower payment by choosing a longer term, but you have to decide if it’s worth the end result. Choosing a 20 or 25 year term over a 30 year term won’t change your monthly payment a significant amount, but it will save you thousands of dollars in interest.

A real world example
John and Jane want to purchase a $300,000 home. They have 20% to pay down so the remaining balance to finance is $240,000. They have the following options to finance the home

Term     Rate     Payment     Total Interest
30         7%       $1,596        $334,821
25         6.875% $1,677       $263,154
20         6.75%   $1,824       $197,969
15         6.625% $2,107       $139,293

As you can see the savings in interest alone from a 30 year term to a 15 year term is almost enough money to purchase the home again; Almost $200,000 in savings. I realize that the payment is about $500 more per month but their is a happy medium. For example 20 year term is only about $200 more per month and you will still save $136,000 in interest!

So, before you decide what term to choose for your mortgage consider all the pros and cons of each term. Ask yourself, is buying a home on a 30 year mortgage term worth losing hundreds of thousands of dollars?