Posts Tagged ‘Home’

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.

Be smart when you refinance your home

It may sound tempting to refinance your home loan now that rates are low, but is it really the smart thing to do? Before you make the final decision to refinance your home be sure to do all the calculations carefully. You could actually end up losing money on a home refinance.

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!

A Mortgage Buy Down Program Right For You?

A mortgage buy down program or reverse mortgage may be an acceptable option for someone living on a fixed income who has no other means to earn money to pay for their current expenses.

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!

A Bigger Home Means Bigger Expenses

If you think you are ready to purchase a bigger home you may want to reconsider. There are many hidden costs associated with upgrading your home that may max out your monthly budget. Consider all the extra costs and expenses associated with a larger home before you take out your mortgage.

Examples of expenses include: more expensive heating and cooling bills, higher home maintenance costs, increased property tax and insurance costs, additional furnishing costs.

The largest portion of your gas or electric bill is your heating and cooling system. Buying a bigger home will obviously increase your utility and energy bills. It’s something that’s easy to overlook when calculating how much you can afford in your budget for your new monthly mortgage payment. Don’t put yourself in a bind because of this overlooked expense.

Home maintenance costs will also increase. Every house will require general maintenance over time. From leaky pipes to a new roof at some point you will face repairs. With a bigger home these expenses will only increase.

Property taxes and insurance are both based on the value of the home. Usually the bigger your home the more valuable it is to you, the insurance company and government. The more your home is worth the more you will pay in annual property taxes and incurance premiums.

Additional furnishings will have to be purchased to fill up that extra space in your new home. Why would you buy a bigger home if you weren’t going to take advantage of the space? Be prepared to shell out some extra cash on furniture if you’re going to buy a bigger home.

Don’t get depressed when reading this article. I’m not trying to tell you you’re stuck forever in your starter home, I’m just saying be smart and plan ahead. Once you commit to a mortgage you’re usually committed for a while.

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%!