Ben Smecklee asked:




We all know that putting extra payments down is going to pay off your mortgage faster and save you money. But what not everyone knows are the little insider tips that allow you to know to the penny, EXACTLY, when to use them to pay off your mortgage, how much to make them in, and exactly what you’ll save as a result.

See, it’s really NOT about how many you make, or how often, or even how much you make them in. When you’re trying to pay off your mortgage faster their is only one thing that matters.

Timing.

You see mortgages are structured pretty creatively. Mortgage companies tell you that you’re only paying the 5-7% rate, but they never explain what that really means. Our mortgage payments are almost completely wasted on interest at the beginning of our mortgage. This is what makes it so difficult to pay off your mortgage.

What it means is that a $4000 payment may only $250 of principle. The entire rest of that payment goes to PURE INTEREST. It’s basically burning a hole in your pocket when it should go to pay your mortgage off.

Now, here’s how to beat it. If you make a $250 principle payment on its own… right before you make the $4000 payment then guess what? You just completed that entire payment without wasting $3750 on interest. You moves you amortization down the line to pay off your mortgage. Sure, you’ll still have to make a $4000 payment, but you pay your mortgage off $3750 earlier and it only cost you $250! That’s how banks think.

If you could get $3750 for every $250 you put in, how many times would you do it? As many as you good and you wouldn’t just pay your mortgage off, it’d evaporate.

If this doesn’t quite make sense yet then grab a copy of your amortization schedule or The Mortgage Loophole Report and analyze how they’ll pay off your mortgage. You’ll see.

So…

Catch #1 – If you make a small prepayment at the beginning of the term, you’d pay off your mortgage MUCH earlier than you would by making a bigger principle payment at the end of your mortgage.

When you put the money in at the end you don’t even pay your mortgage off as fast or save near the amount of interest because most of your payment is going to principle anyway. As you pay off your mortgage they weaken. Your mortgage pay off time literally depends on this.

So, the secret to pay off your mortgage is to understand the way a mortgage amortization has been structures to accommodate certain methods to pay off your mortgage.

Catch #2 – Although you probably realize that this information is important to pay off your mortgage you probably won’t be able to apply it the the extent that you wish you could. Honestly, if you had all the extra cash to pay off your mortgage with, then you’d have made a bigger down payment on your home. It’s not until most of us have already been trying to pay off our mortgage that we start to get the extra cash to put towards the pay off.

Dana B. Smith asked:




Taking into consideration the latest turn over of the housing market there are many consumers that have been left without a home. This is not need to happen to all consumers because with a little assistance and subprime mortgage aid this situation could be avoided. Obviously, it is not easy to get rid of a stressful mortgage, but now there being designed around the country some subprime mortgage assistance programs to help homeowners. There are many such programs which offers assistance especially in the United States. You need to make your own judgment when it comes to dealing such matters.

Finding subprime mortgage assistance is frequently as easy as calling your lender. Due to the costs that are involved when being in foreclosure, your lender will certainly agree to help and avoid this process. If you do not want to get in touch with them they are not able to provide borrowers the needed help for subprime mortgage holders. However, if you decide and contact a representative of your lender they should help you and get you in contact with specialized agencies who can deal with your type of loan. Another option is the lender possibility to offer you his own subprime mortgage assistance program.

There are some consumers which look for help in their local governments, but the programs offered are rare. Because many areas do not have necessary amount of money to solve the problems of all borrowers it is hard to believe that some really sustain these programs. Although the federal government is trying to create some programs to solve the problems with subprime mortgage, because of the government necessities their help is often delivered to late. For this reason, for many consumers there are not many options left.

Therefore, the best solution to find help when dealing with a subprime mortgage is to get in touch with your lender who is taking care of your mortgage. Plus, it is in their benefit that the payments stay firm, and often they are interested in making arrangements and to help you. But if you find yourself trapped in huge problems but still wanting to preserve your home, you could get assistance from your lender as a temporary deferment, or you could divide your missed payments in small amounts and add them in the fallowing payments.

It is important to start and look for help no matter the sort of subprime mortgage you have. This requires some phones to make and to sacrifice some of your time, but in this way you can find the best subprime mortgage assistance programs and which are specially designed for specific features you need . There may be some who have requirements as length in loan, the loan amount, the interest rate paid, that have to be met so that they could give you the help needed. The most important objective is to preserve your home safe and, that is why a little bit of your time in deciding how to get the appropriate subprime mortgage assistance it is worth the trouble.

Kate Ross asked:




Many lenders are offering a solution to this lack of down payment problem for those who want to eliminate the PMI variable from their mortgage loan payment equation: a combination of a mortgage loan and a home equity loan or personal loan to complete the 20% down payment. Is this really a solution? What are the benefits? What are the drawbacks?

Private Mortgage Insurance

Private mortgage insurance protects the lender against default by covering the mortgage payments in case the borrower cannot repay the loan for one of the reasons stated in the insurance policy.

Private mortgage insurance is not required for any mortgage loan but when it comes to all home loans where the amount is higher than the 80% of the purchase price of the loan, PMI payments are compulsory (with the exemption of VA loans and other preferred home loans).

Thus, in order to avoid paying private mortgage insurance charges, the borrower needs to obtain sufficient funds for a 20% down payment. As this is seldom possible, people usually cope with the higher payments and eventually they decide to refinance with better terms.
Yet, it is possible to get financing with advantageous terms and no PMI from the very beginning by using a combination of loans instead of a single mortgage loan with PMI payments.

Remember though, that if it is within your hands to obtain the necessary down payment in cash it is well worthy to do so even if you have to wait a few months because you will not only save yourself the PMI payments or the interests on the additional loan but you will also be able to obtain more advantageous terms on your mortgage loan.

Combination Loans Based On Equity

These home equity loans can provide you with the funding needed to obtain the 20% down payment to avoid Private mortgage insurance payments. Though the interest rates on these loans tends to be a bit higher than what is charged for the mortgage loan, in the long run, this implies lower payments than a single mortgage loan that would charge PMI fees. And sometimes, the costs are lower right away if you only need a smaller amount of money because you already have some savings for the down payment.

Whether it is advisable or not to obtain these loans instead of a single mortgage loan with PMI is a matter of discussion. But most importantly, it will depend on your particular situation and on market conditions. The smart way to go is to compare your options and have the lenders provide you with different loan quotes to see which one best suits your needs and desires. Sometimes the difference may not be too significant, but under certain circumstances you can save thousands of dollars in the long run.

D.K. Fynn asked:




Just a few days ago, someone asked, “How Can I Shorten The Years of My Mortgage?”

Indeed that is a good question, and I’ll try to explain. I won’t dive deep into all the details, but I’ll give you a quick response.

So Why Do Mortgages Last So Long In The First Place?

First, we need to address two areas: principal and interest, and how much is applied to each.

I’m sure you’re familiar with these, but let me re-establish something, so you know where I’m coming from: The most difficult problem we face in any loan is the principal balance-because the interest is charged on that balance.

Having said that, have you ever studied how your monthly payments are being allocated between principal and interest?

That is, what portion of your monthly payments go toward cutting down the principal, and how much goes toward the interest?

Though I don’t know your exact situation, I can wager that if you’re in the US, the overwhelming majority of each payment goes toward interest, NOT principal. Whether the interest rate is high or low, it’s the principal that causes the problem.

A few weeks ago, one of my friends was furious to learn that, of each payment she was making, only about $50 was going toward lowering the principal.

She was lucky, because she now has a chance to do something about it. Many Americans never realize how serious this is, because it robs us of our retirement. Banks front-load our loans, charging the majority of the interest at the beginning. The result is: we pay for our mortgages decades longer than we otherwise should.

You see, the fact that most of each of your payments go toward interest in the beginning, rather than principal, the bank is forcing you to make payments for a long, long time–much longer than you should.

Remember, we’ve established that the real problem is the principal, not the interest. Of course, interest is a factor, however, we must remember that the high principal is causing the higher interest allocation…

… and because the interest is calculated on the outstanding principal…

…so goes the seemingly endless cycle of unnecessary mortgage payments, because the principal doesn’t get reduced fast enough.

How To Shorten The Length Of Your Mortgage

So, regarding the question of how to shorten the number of years on your mortgage, a better question might be: “How do I apply more money toward lowering the principal?”

On thing’s for sure: your bank isn’t going to tell you any secrets, since their goal is maximize their profit on your loan.

It’s important that you find a way to make sure that a greater portion of your monthly payments apply toward your principal-not your interest. And there certainly are ways to do that!

Bill Burress asked:




With the tightening of underwriting guidelines many borrowers are getting turned down because their FICO scores are not high enough to meet the threshold requirements to be underwritten. Foreclosures are at an all time high and every week it seems the tightening is getting worse. Those with low FICO scores are often left out in the cold.

Lenders are using FICO scores to grade applicants to determine credit risk. A borrower may have a more delinquencies or collections or items on their public record that will reduce their score below many lender’s threshold FICO scores. Other factors that may reduce FICO scores can be the proportion of balances to limits on revolving or installment accounts. Some borrowers think that they can raise their scores by closing accounts. Many times this will lower their credit score. A borrower that has more than one name reporting on their credit may see a score hit. The same holds true with multiple addresses.

Some threshold scores are being raised with many lenders for underwriting purposes and as a result more borrowers are being turned down.

The key to getting the borrower approved is having programs where the threshold score is lower. Once that happens, the mortgage originator can at least look at the file and start verifying information and building a case for approval. Sometimes it’s a lot of work but many items can be explained to the underwriters if the borrower’s FICO score meets the minimum threshold level. This will work the same whether the borrower is trying to get refinanced or purchase a home.

Jim Cramer asked:




Many home buyers find it difficult to provide the required 20% down payment and are forced to pay private mortgage insurance, or PMI, in order to buy a home. Private mortgage insurance solves the down payment problem but creates another two: it increases monthly payments and on top of that it is not tax deductible. Fortunately, there is more than one way to get your desired home without having the 20% down payment and avoid PMI at the same time.

Terminating PMI When You Already Have One

The use of private mortgage insurance has been a great way to make it possible for a borrower to buy a home with as little as 3-5 % down payment and give the lender insurance in case the borrower defaults on the home loan. However since PMI payments can be significant, the borrower starts to ask himself/herself how to get rid of those payments.

The Homeowner’s Protection Act includes rules for automatic suspension of PMI payments and cancellation of PMI when 22% equity in the borrower’s home is reached. Those rules apply to mortgages signed on or after July 29, 1999, and exclude government-insured FHA or VA mortgages that are considered high-risk to default.

Additionally, disregarding the time when the mortgage was signed, the borrower may ask for PMI termination once s/he exceeds 20% equity.

Avoiding Private Mortgage Insurance via a Piggyback Loan

Piggyback loans are a very popular way of avoiding private mortgage insurance. It consists of taking a loan (first mortgage) covering 80% of the sale price of the home and taking and placing additional 5%, 10% or 15% on a second mortgage. A combination of 80% first mortgage, 5% second mortgage and 15% down payment is referred to as 80/5/15. Accordingly, the other two loan combinations are 80/10/10 and 80/15/5.

Although second mortgages generally have higher rates, in the end the borrower may save money because in contrast to PMI payments, now the loan payments are tax deductible.

Choosing a Finance Single Premium Option over Private Mortgage Insurance

Since an increasing number of borrowers are turning to piggyback loans in order to avoid PMI, the mortgage insurance industry came up with this solution claiming that it lowers monthly mortgage payments to the same or lower level as a piggyback loan. With this option homebuyers pay a single premium on their insurance and it is amortized over the term of loan.

One of the pitfalls of this solution is that few lenders offer this option, since Fannie Mae and Freddie Mac do not work with this kind of PMI structure.

Finding a Loan with No Private Mortgage Insurance

Loans with no PMI have one great disadvantage – they typically have higher interest rates. Instead of paying regular PMI, the latter is included in the higher rate of the mortgage.

Which of the above solutions will be best for you depends entirely on your particular case. Sometimes paying the private mortgage insurance might turn out more beneficial than choosing to avoid it with a second mortgage. Therefore you should consider your decision carefully and make all the necessary calculations in order to make the right choice.

Frank Bruno asked:




Think of it this way: A retail store buys its merchandise wholesale from a distributor. The store then marks up the merchandise, and sells it at retail to Mr. And Mrs. Consumer. It’s the same way with a mortgage broker. The broker establishes relationships with several wholesale lenders. These wholesale lenders have pricing that is below the rates you see published in the newspaper.

Mortgage brokers are some of the most creative people you will ever meet – they will come up with unbelievable ways to make money off you. Rarely, if ever, will they give you a no-cost loan. Brokers make their money in several ways: with front-end points, back-end points, and junk fees.

Front-end points are those that you see in advertising. They are often referred to as “discount points.” The selling point here is that when you pay more points up-front, you “buy down” your interest rate. In other words, the more points you pay, the lower your interest rate. There can be some advantages to paying points. If you are buying a home, for example, the points you pay are generally tax-deductible (consult your tax advisor).

If you are planning to stay in your home for a long time, or do not plan on refinancing, the savings you encounter in the interest rate will offset the points you pay over the life of the loan, saving you money in the long-term. However, these points also go directly into the mortgage broker’s pocket. He may have charged you a rate that you thought you “bought down,” when in reality you already had a good rate and paid points for nothing.

For example, you might have a mortgage for $150,000 at 7.5% with 2 points. Those 2 points equals $3,000 out of your pocket and into the broker’s. This is just for one loan. Multiply this by several loans per month, and you see why there are so many mortgage companies in the yellow pages.

Back-end points are fees paid to a mortgage broker from the wholesale lending institution. Usually, the higher the rate, the higher the back-end points. This is very tricky, because there are creative ways in which these fees are disguised in loan disclosures. Many mortgage brokers will hit you with a combination of both front and back-end points

Junk Fees are fees charged by brokers and/or lending institutions as an add-on to any standard fees you might pay. Usually, these fees are not tax-deductible. Junk fees can be placed under any of a number of guises on your settlement statement, including Processing Fees, Underwriting Fees, and Warehouse Fees.

Mortgage Banks

Mortgage Banks are like retail storefronts. Let’s take a shopping mall, for example. A shopping mall is an establishment filled with nothing but retail stores. The store that you go into would depend on your needs. If you need shoes, you would go to a shoe store, and so on. Each store has its own specialty.

The same is true with mortgage banks. Some specialize in dealing with borrowers with perfect credit. Some specialize in dealing with those with problem credit. Some deal with a combination of both, and so on.

Herein lies the problem with banks. You can go to one, but if you don’t fit into their criteria, you’re pretty much out of luck. If you are lucky enough to be approved by a bank, you pretty much have to live with the rate you are given. There is little, if any, room for negotiation.

Mortgage banks not to be confused with a depository institution where you would keep your checking account. Mortgage Banks do not take deposits.

Regardless of which you use, they will have roughly the same guidelines for comparable mortgage products. Always make sure that you are on top of your credit scores before approaching either a bank or a broker. By doing so, you can go into the application process knowing what they know. Brokers, especially, will treat you with a little more care when you know your own credit situation.

Mark Bennett asked:




Any mortgage rates forecast must take into account the fall-out from the sub-prime crisis – now poorly named, because the rot has spread from the high-risk sub-prime sector to even the prime mortgages underwritten By Freddie Mac and Fannie Mae.

There are several ways in which the sub-prime crisis affects mortgage rates forecasts.

1. Each Mortgage Rates Forecast Rises Due To Increasing Risk

When house prices plummet as a result of forced sales, it makes mortgage lending in general more risky. Even a 20% deposit has not been enough to prevent some home owners from defaulting on their mortgages and being unable to sell for a high enough price to cover the loan. Mortgages classified as “prime” are now showing up as losses on the books of some banks. The investor’s response to increased risk is always to require a higher return – in this case, a higher return means a higher interest rate on mortgages. Interest rate predictions must be for higher interest rates as a result of the mess in the residential real estate markets across the country.

2. Any Mortgage Rates Forecast Rises Due To Falling Supply And Rising Demand

Mortgage interest rates, like all retail interest rates, depend on the general interest rate in the wider economy – the rate at which banks and other financial institutions can borrow funds. This is usually benchmarked by the 90 day bank bill rate. Generally, lenders only have 10% of the funds they lend out as mortgages in deposits – the rest is borrowed. This is why having too many defaults on mortgages can get a bank into big trouble – they can no longer afford to pay their own debts then!

The sub-prime crisis greatly reduced the willingness of other organizations with money to lend it to banks for the purpose of mortgages. This means that the supply of credit has markedly reduced. A low supply and a steady demand will always cause prices to rise, and in this case, the price of money is the interest rate.

The credit squeeze is putting upward pressure on the mortgage rates forecast, and all interest rates in general.

3 Our Mortgage Rates Forecast Rises Due To The Falling US Dollar

As a result of the sub-prime crisis, ant its spread to the prime mortgage market, the entire US financial system is regarded by the rest of the world as unstable. This is resulting in a flight of mobile capital from the US. The only way to entice this capital to remain in the US, and thus halt the slide in the US dollar, is to pay a higher return, which means having a higher general interest rate within the US, including for mortgages.

The government bail-out of Freddie Mac and Fannie Mae, while necessary to stabilize the property market within the US, will further erode the confidence of international money managers in the US economy, putting further downward pressure on the US dollar.

Until the US dollar stabilizes, there will be significant upward pressure on any mortgage rate forecast, and interest rates in general.

While some are still arguing about the causes of the sub-prime crisis, there is no doubt that its effects are significant and far-reaching. The instability of property prices, the credit crunch, and the loss of confidence in the greenback will take several years to restore to what was previously considered “normal” – and there is a very real possibility that we will never see the US dollar as strong on the global stage again.

For this period, possibly up to a decade in length, the mortgage rates forecast is in one direction only – upward. If you can, fix your mortgage now for 30 years, because you may not see mortgage interest rates this low again for decades.