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| Home Equity Line Of Credit Still A Great Option For A Loan If you are considering refinancing an existing mortgage, be sure to do your homework. Ads for "low rates", "reduce your payments" or "quick loan approval" are plastered all over the internet, tv and newspapers. The offers are tempting. However, before you sign on the dotted line, you should look at the costs of a Home Equity Line of Credit (HELOC). Weigh these costs against the benefits of the HELOC, make sure you can handle the monthly payments, and that you are using the HELOC to pay for major emergencies. This is not a loan for day-to-day expenditures. A HELOC differs from a conventional home equity loan in two very important areas. First, with a HELOC the borrower is not advanced the entire amount of the loan. The borrower has a maximum amount to draw from. He can draw down all of the funds in one withdrawal or he can make periodic withdrawals. Secondly, the interest rate on a HELOC is variable. This means that over a period of time, the rate will change. So be prepared for the highs as well as the lows. Many borrowers are drawn to the HELOC because of the flexible repayment feature. In this respect it is similar to a credit card. The borrower can pay the minimum amount, or he can make a larger payment when he has extra funds available. In setting the rate the lender refers to the "margin", also to the "index". The index is usually the prime rate. So if the prime rate is 3% and you are given a margin of 1.5%, your rate will start at 4.5%. With excellent credit you can negotiate a margin of 0%. But with poor credit your margin will be around 6%. Negotiate at every opportunity. Here are some areas to work on. 1. Application fee. Expect to pay something. But keep it to a minimum. 2. Home appraisal. If the deal goes through, ask the lender to pay the first $75. If the deal is declined, ask the appraiser to let you use the appraisal report, with another lender. 3. Closing costs. Do not agree to pay for this. 4. Check fees. Some lenders would charge you every time you write a check to make a withdrawal from your HELOC. Never agree to this. You are already paying interest on the amount of the check. 5. Annual fee. HELOCs are usually open for 5, 10, or 15 years. An annual fee could run you about $500, so ask for a waiver. 6. Inactivity fee. This is a punishment. If you took the HELOC for an emergency situation, you shouldn't be penalized if there is no emergency. 7. Fixed rate conversion. Ask the lender to allow you to concert to a fixed rate, if the rate drop substantially. Remember that a plan of action is necessary to succeed. Write down your plan and start shopping. To learn more, read about No Cost Refinancing. |
| Preserve Your Home Equity: You Might Need To Borrow Housing prices have dropped 26 percent since 2006. To date there are over 11 million homeowners with negative equity in their houses. Here are a few tips to help you recapture some equity in your house or keep the little equity that you already have. Change your payments to bi-weekly mortgage payments. Bi-weekly payments give you 26 payments during the year. There will be 1 month of payments extra. This goes to the principal. Always make your payments on time. Late fees and penalties can be added to your principal. This erodes your equity. Do repairs to the house as soon as you know about them. If you wait until "later", the repairs beome blown out of proportion. Make pre-payments on your mortgage on a regular basis. The prepayments go directly to reducing the outstanding balance. This is because it is applied to the principal not to the interest. Don't borrow against your house. You are taking equity out and replacing it with the cash you get. The housing market will recover. If you preserve your equity you will reap the benefits whether you sell the house or live in it for another 25 years. prev: next: Home: |
| Home Equity Loan: 3-day Cancellation Rule You have just signed the mortgage documents at your banker's office, but as you leave, you have second thoughts. Your right to rescind will protect you. Your "right to rescind" or "right to cancel" is guaranteed in the Truth and Lending Act. You have until midnight of the third business day to cancel the transaction. The property used as collateral must be your principal residence. It could be a house boat, a mobile home, a cottage or a condo. An investment home or a vacation home does not count. Day one starts when all of the following occurs: 1. You sign the credit contract. 2. You receive a Truth in Lending disclosure form containing the key information about the credit contract. These facts include the amount financed, the APR, the payment schedule and the finance charge. 3. You receive two copies of a Truth in Lending notice explaining your rights to rescind. If you rescind, you must do so in writing. And you must deliver the letter to the lender, or have it delivered by a courier and get a signature as proof that the letter was received. If there are multiple owners of the house, and one person rescinds, this action is binding on all owners. There are some exceptions to the rescind rule. These include: 1. When you apply for a loan to buy or build your principle residence. 2. When you refinance the loan with the same lender and you are not requesting additional funds. 3. When a state agency is the creditor for a loan. If there is an emergency, and the money is needed immediately, you can waive the right to rescind. prev: next: Home: |
| ARMs To Reset: More Defaults And Foreclosures Expected Homeowners with adjustable rate mortgages are nervous about their payments when the mortgage resets or is recast. Mortgage industry insiders fall into two camps on this issue. Many experts feel that the reset will not be as devastating as at first anticipated. If interest rates remain low the payment shock will not be that bad. And rates should continue to be low through the middle of 2012. "The Fed has been moderating policy and keeping rates low for treasurys that serve as an index for ARMs" said Frank Nothaft, chief economist at Freddie Mac. Other experts feel that the danger signs are still there for ARM borrowers and the housing market. In some ARMs, such as the option ARM, the borrower pays interest only. No portion of the payment goes towards the principal. Compounding the problem is the drop in house values. When they reset, the homeowner is already underwater with his mortgage. Even with low interest rates, the mortgage payment will increase for many homeowners. Some might not be able to afford the new payments, and as a result, default on the mortgage and end up in foreclosure. The delinquency rate and the foreclosure rate for ARMs is still high. In a report from Deutsche Bank, delinquencies of more than 60 days for payment option ARMs originated in 2006 have risen from 23.26% in 2008-2009, to 42.44% today. For 2007 ARMS the delinquency rate jumped from 10.1% to 35.25%. New homebuyers are heeding the danger signs and opting for a fixed rate mortgage. Around 80% of all new mortgages are long term fixed rate mortgages. With rates this low, this is a good strategy. If you have the opportunity to refinance before your mortgage resets, go for it. Be prepared to answer lots of questions and to provide a truckload of paperwork. The good news, it's worth it! Readers that read this also liked: Why Do Borrowers Default On Home... All 50 States Must Attack Foreclosure.. |
How To Cancel
Private Mortgage
Insurance & Save
Money
Private Mortgage
Insurance & Save
Money
The Homeowners Protection Act (HPA)
of 1998 establishes rules for automatic
termination and borrower cancellation
of PMI. For home mortgages signed
on or after July 29, 1999, the PMI must
be terminated automatically. The
following conditions apply:
1. There must be 22% or more equity in
the property based on the original
property value.
2. The mortgage payments must be
current.
Cancellation will not occur if the
mortgage is:
High risk
not current within the year prior to the
time for termination or cancellation.
Having a lien against the house will
also prevent cancellation of the PMI.
If you have reached 20% equity in your
house, based on the original property
value, you can ask the lender to
cancel the PMI. However, the HPA
cannot force the lender to grant your
request. The lender might be able to
get you a lower monthly payment,
considering that you are so close to
22%.
Under HPA, if your PMI has not been
canceled or terminated, coverage
must be removed when the loan
reaches the midpoint of the
amortization period. On a 30 year loan
with 360 monthly payments, the
midpoint would occur after the 180th
payment. Final termination will occur
within 30 days of this date.
Depending on the size of the
mortgage, and the risk involved your
PMI premium could be $60 a month or
more. This represents $720 which you
could use to pay down the principal or
put to some other good use.
Refinancing, in many instances will
change the equity in your house. Ask
your lender if it is a requirement for
your mortgage. Also ask that more
than one quote be provided for PMI.
Check your escrow account to see
how much you are paying for PMI.
Typically, the rate is about $60 per
month per $100,000 of the loan
amount. It could be as high as $1,600
on a $200,000 loan. If you would like to
have the PMI canceled call your
lender and ask how to have the PMI
terminated.
In some situations, the lender will
insure the loan. His cost is passed on
to the borrower through the rate he
charges. Usually, the borrower is not
aware of the insurance.
of 1998 establishes rules for automatic
termination and borrower cancellation
of PMI. For home mortgages signed
on or after July 29, 1999, the PMI must
be terminated automatically. The
following conditions apply:
1. There must be 22% or more equity in
the property based on the original
property value.
2. The mortgage payments must be
current.
Cancellation will not occur if the
mortgage is:
High risk
not current within the year prior to the
time for termination or cancellation.
Having a lien against the house will
also prevent cancellation of the PMI.
If you have reached 20% equity in your
house, based on the original property
value, you can ask the lender to
cancel the PMI. However, the HPA
cannot force the lender to grant your
request. The lender might be able to
get you a lower monthly payment,
considering that you are so close to
22%.
Under HPA, if your PMI has not been
canceled or terminated, coverage
must be removed when the loan
reaches the midpoint of the
amortization period. On a 30 year loan
with 360 monthly payments, the
midpoint would occur after the 180th
payment. Final termination will occur
within 30 days of this date.
Depending on the size of the
mortgage, and the risk involved your
PMI premium could be $60 a month or
more. This represents $720 which you
could use to pay down the principal or
put to some other good use.
Refinancing, in many instances will
change the equity in your house. Ask
your lender if it is a requirement for
your mortgage. Also ask that more
than one quote be provided for PMI.
Check your escrow account to see
how much you are paying for PMI.
Typically, the rate is about $60 per
month per $100,000 of the loan
amount. It could be as high as $1,600
on a $200,000 loan. If you would like to
have the PMI canceled call your
lender and ask how to have the PMI
terminated.
In some situations, the lender will
insure the loan. His cost is passed on
to the borrower through the rate he
charges. Usually, the borrower is not
aware of the insurance.
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