Posts Tagged ‘interest rate’

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!