When applying foe a Mortgage Loan , there are many pitfalls that most consumers are not prepared for.
Mystar Credit Counseling offers help in understanding the terms used in Mortgage Refinancing and Mortgages as a whole.
Call 317-284-6500
7271 N Shadeland Ave. Indianapolis? In 46250?? www.mystarcredit.com
?
?
?
What is home equity?
Home equity is the difference between the value of your home and the amount you owe on it?
- For example if you have a home worth $100,000 and you owe $75,000 on it you have $25,000 of equity in your home?
- If you owe $125,000 on the same home you would have negative equity of $25,000 or be upside down
What is a loan to value ratio?
- A loan to value ratio is the ratio that results from dividing the outstanding principal balance of the loan by the value of the home.
- If you have a home worth $100,000 and you owe $75,000 you would have a 75% loan to value.
You have 3 business days to cancel the loan?
- If you are using your home as security for a home equity loan or line of credit federal law gives you 3 business days after signing the loan papers to cancel the deal for any reason without penalty?you must cancel in writing and the lender must return any money you have paid to date
?
?
What is a home equity loan?
- A home equity loan is based on the amount of equity in your home and allows you to borrow funds for a fixed length of time with a fixed interest rate and fixed payments
- The term is usually between 5 to 30 years and the best rates are offered on shorter-term loans
- Long term equity loans tend to have higher rates than fixed-rate mortgages even when interest rates are low
- If you have a one-time need for cash and prefer the security of a fixed rate, a home equity loan may be for you
- Borrowing limit based on your home's appraised value
- Interest paid on home equity loans may be tax-deductible (please seek the advice of an accountant on this)
- The APR takes into account the interest rate charged plus points and other finance charges
- Typically no closing costs
- Rates higher than mortgage refinancing
What is a home equity line of credit?
- A Home Equity Line of Credit (HELOC) is based on accumulated home equity and generally offers a variable-rate revolving line that may be borrowed again as it is paid off (similar to a credit card)
- The variable rate must be based on a publicly available index e.g. the prime rate as listed in the Wall Street Journal so it is important to know what index it is based on, how often it changes and any margin
- Some may have a low introductory rate
- By law they must have a cap on how much your interest can increase over the life of the loan
- Some plans limit how much your payment may increase and how low your interest can fall if the index drops
- The interest rate fluctuates so your payments may not be the same every month
- Payments may be interest only or principal plus interest
- You can access the line of credit using special checks or a card linked to the line as you need the money and only make payments and pay interest on the amount you have borrowed
- Some are flexible and allow you to lock the interest rate on all or a portion of the balance at any time
- The draw period is the period of time in which you can borrow money and minimum payments are required during this period
- After the draw period ends you can no longer borrow money from the line of credit
- When the draw period ends you will enter the repayment period and your payments will likely be larger than during the draw period
- If you make only the minimum payments you may not pay off your entire balance by the end of the term and you will have to make a balloon payment
- May be renewable
- The quoted APR will not reflect closing costs and other fees and charges so compare all costs among lenders
- Interest paid may be tax-deductible (please seek the advice of an accountant on this)
- Typically no closing costs
- Rates higher than mortgage refinancing
- If the value of your home falls significantly your lender may freeze your line of credit and you will not be able to make additional withdrawals
- Lenders can also freeze your line of credit if they believe you will be unable to make your payments due to a ?material change? in your financial circumstances
- Beware of prepayment penalties
Costs to Establish and Maintain a Home Equity Line
- Appraisal fee
- Application fee, which may not be refunded if you are turned down for credit
- Up-front charges such as points (one point = 1% of the credit limit)
- Closing costs, including attorneys? fees, title search, mortgage preparation
- Additional fees may include annual membership or maintenance fees or transaction fees every time you draw on the credit line
- Some lenders waive some or all of the closing costs
What is a mortgage refinance?
- When you refinance you pay off your current mortgage with the proceeds of the new mortgage loan
- Reasons to refinance
- Lowering your interest rate
- Changes in market conditions
- Improvement in your credit score
- Getting a shorter term on your loan
- Cash out of the equity in your home
- Lowering your interest rate
- Increasing the term of your mortgage reduces your monthly payment and increases the length of time you make payments and the total amount you pay in interest
- Decreasing the term of your mortgage generally 15 year mortgages have lower interest rates than longer term mortgages and you pay off your loan sooner reducing your total interest costs?the tradeoff is higher monthly payments
- Changing from an ARM to a fixed-rate
mortgage
- Gives you a steady payment and interest rate
- If you think rates will increase it might be a good idea to consider this
- Getting and ARM with better terms
- A better interest rate
- Smaller interest rate adjustments
- Lower payment caps
- Cash Out
- Often used for home improvements or pay for education
- Remember you own less of your home
- Sometimes used for debt-consolidation
- Rates are typically lower than home equity loans or lines of credit
- Typically costs 3% to 6% of your outstanding principal in fees?application fee, loan origination fee, points, appraisal fee, inspection fee, attorney review/closing fees, homeowner?s insurance, FHA, RDS or VA fees or PMI, title search and title insurance, survey fee and prepayment penalty
- Closing costs
When is refinancing not a good idea?
- When you?ve had your mortgage for a long time?more of your payment is going towards the principal now
- You current mortgage has a prepayment penalty
- If you are refinancing with the same lender ask if they can waive the penalty
- Consider the cost of prepayment penalties versus the savings
- You plan to move from your home in the next few years?the
monthly savings gained may not exceed the costs of refinancing
- Lender covers the closing costs, but charges you a higher interest rate for the life of the loan
- Refinancing fees are included in your loan?they become part of the principal you borrow and you pay them with interest over the life of your loan
- A lower cost solution to refinance a mortgage
- A fast, easy process to refinance
- Shorter terms to pay off your home sooner
- To make major home improvements, consolidate debt, or pay for other large expenses
What is a home improvement loan?
- A Home Improvement Loan is a fixed rate loan that requires no collateral with loan proceeds being used for home improvements.
- It is designed to finance home repairs, remodeling, new roof or windows, new patio or driveway, and more without tapping into home equity.
- Competitive fixed rates, lower than most credit cards, and same day approval
Free/Low Cost Resources:????????????????????????????????????
John H. Boner Community Center Financial Coaching
Bankrate.com
Consumerfinance.gov
Credit Tip of the Week
Before refinancing or taking out a home equity loan or line of credit think about why you need the money and whether or not this is the best way to get it
Word(s) of the Day??? ?????????????????????????????????????
Equity = Wealth?
?
Newsworthy?????
October 31, 2012 11:15 AM ET
WASHINGTON (Reuters) - Applications for home mortgages fell last week as demand for refinancing tumbled for the fourth week in a row, an industry group said on Wednesday, although other recent data has indicated the housing market is improving.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, was down 4.8 percent in the week ended Oct 26.
The MBA's seasonally adjusted index of refinancing applications dropped 6 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, edged up 0.5 percent.
The U.S. Federal Reserve last month helped spur mortgage activity when it announced a third round of so-called quantitative easing to aid the economy, driving down home loan rates and making it more attractive for borrowers to refinance.
Mortgage activity has faded somewhat since that impetus, possibly highlighting a dwindling number of homeowners able to take advantage of lower rates due to weak credit scores, or not enough equity in their homes because of lower house prices.
But one analyst said the mortgage applications numbers can be volatile and he did not think the decline of the last 4 weeks indicated a deterioration in the broader outlook for housing, which has brightened in recent months.
"Overall, the housing data has been favorable," said Daniel Silver at JPMorgan in New York. "New home construction, new home sales - levels are still very weak, but you see growth rates picking up, and it is pretty clear that it is on an upward trend," he said.
The Mortgage Bankers Association said that the refinance share of total mortgage activity slipped to 80 percent of applications from 81 percent.
Fixed 30-year mortgage rates averaged 3.65 percent in the week, up 2 basis points from 3.63 percent the week before.
The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.
(Reporting By Alister Bull; Editing by Claudia Parsons)
(c) Copyright Thomson Reuters 2012. Check for restrictions at: http://about.reuters.com/fulllegal.asp
nfl mvp lana del rey snl performance nick diaz sheryl sandberg superbowl recipes super bowl kick off chili recipes
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.