Q:
Dear Dr. Don,
I've heard of a mortgage strategy that involves getting an equity line on the house and using that money to pay bills you know you would have to pay anyway, along with the mortgage payment. The end result is that you can pay off all your debt faster. Fact or fiction?
-- Chris Conundrum
A:
Dear Chris,
Fiction. I don't like writing about this topic, because when I come out against it, every sales representative pushing this product writes in to tell me how I just don't get it. I get it just fine. I just don't think the typical homeowner benefits from this type of mortgage loan.
Compare home equity rates
Bankrate can help you find the best home equity rates in your area.
Some of these programs even sell you software packages to manage the process. I have a loan program you can use for free. Enter your mortgage particulars on Bankrate's mortgage calculator, then add an additional monthly principal payment each month and see how it changes your payoff date and total interest expense.
Yes, if you put every penny you can into paying down your mortgage, you will pay the loan off faster and own your home free and clear sooner. You don't need a home equity line to do this, just make additional principal payments on your conventional mortgage loan.
The premise of the equity line program is that you deposit your paycheck into your home equity line and then write checks against the credit line to pay your bills. As long as your income is greater than your expenses, you're paying down the credit line and reducing your mortgage interest expense.
The fallacy is that by depositing your entire paycheck into the home equity line, you substantially reduce the intramonth interest expense. You do reduce that expense, but the amount isn't substantial. Let's say that your loan balance is $200,000 at a 5 percent annual interest rate. Depositing a $4,000 paycheck at the beginning of the month and then drawing down $4,000 on the line during the month, if you do it equally over the month, it reduces your average mortgage balance during the month by about $2,000. One month's interest on $2,000 at 5 percent is $8.33.
The real interest savings comes from making additional principal payments on your loan. You don't need a home equity line of credit to make additional principal payments on your loan. Just do it.
Read more: Cashland payday loans Delaware Ohio
четверг, 7 апреля 2011 г.
Use small windfall for savings not debt
Q:
Dear Debt Adviser,
I have a significant amount of debt with high monthly minimum charges (approximately $350 a month). My husband is unemployed and has been working odd jobs here and there. Our income barely covers the cost of our monthly expenses. We have a little bit of money in savings for emergencies, but not enough to cover something serious. I just received a check for $1,000 from a friend who owed me money from years ago. Should I put that money in savings in case we need money for an emergency? Or would it be better to pay down one of the credit cards?
-- Perplexed
A:Dear Perplexed,
I get questions just like yours often. It's hard to know what to do with extra cash when you have been struggling for so long. Besides applying it to savings or debt repayment, many think some of the windfall should go toward some rest and relaxation or a nice surprise for a family member who has been forced to do without. You, however, are clearly focused on getting out of debt as quickly as possible. Here's my take on your situation.
Based on your minimum payment amounts, my estimate is that your debts are between $20,000 and $25,000. The fact that you have some money in savings tells me that you are serious about managing your finances. Trying to pay down your debt at this point won't work for you.
The key to successfully getting out of your debt situation is for your husband to get steady work. Anything less will not solve your problem. Although rumor has it that the economy is improving, it may be months or years before your husband is once again among the gainfully employed.
I recommend you place the $1,000 windfall into savings. The reason being, once you have gone through your cash reserves, you have no idea when you can replace them. So, add the $1,000 to your emergency savings and hope for the best -- that things will improve quickly -- but plan for the worst.
Beyond hoping for a break on the job front, there are a couple of things your husband can do that may increase his chances of getting a job. Many people don't know that it is routine for many employers to pull a copy of an applicant's credit report before making a job offer.
There are a number of good reasons to do this, some based on studies and others on personal opinion. Studies show that an employee with financial problems will likely be distracted and less productive at work. Also, bad credit may indicate poor judgment, irresponsible behavior or a lack of character in a new hire. The upshot is that many employers will not bother to ask why a credit report indicates a problem, they'll just move on to the next qualified candidate with a good credit record.
If he hasn't already, I suggest that your husband get a free copy of his credit report from the website AnnualCreditReport.com and look it over. He should dispute anything he doesn't recognize as well as any out-of-date or inaccurate entries. Then, when his report is as accurate as possible, he needs to develop a short and to-the-point explanation of why he has so much debt, what he is doing about it and why he's still a worthy hire.
Lastly, I recommend you contact your creditors and let them know your situation. Tell them you are having trouble meeting your monthly minimum payments due to unemployment. Ask what programs they may have available to help. Most creditors have some type of short-term (six months to a year or so) hardship program to help lower monthly payment amounts. Some even forgive some interest, fees or principal.
If you don't receive the help you need by contacting your creditors directly, you might consider contacting a nonprofit credit counseling agency for assistance. You can find a reputable agency by visiting the website of either the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. They may be able to get creditor concessions you can't, relieving some of your financial pressure.
Read more: Cashland payday loans Delaware Ohio
Dear Debt Adviser,
I have a significant amount of debt with high monthly minimum charges (approximately $350 a month). My husband is unemployed and has been working odd jobs here and there. Our income barely covers the cost of our monthly expenses. We have a little bit of money in savings for emergencies, but not enough to cover something serious. I just received a check for $1,000 from a friend who owed me money from years ago. Should I put that money in savings in case we need money for an emergency? Or would it be better to pay down one of the credit cards?
-- Perplexed
A:Dear Perplexed,
I get questions just like yours often. It's hard to know what to do with extra cash when you have been struggling for so long. Besides applying it to savings or debt repayment, many think some of the windfall should go toward some rest and relaxation or a nice surprise for a family member who has been forced to do without. You, however, are clearly focused on getting out of debt as quickly as possible. Here's my take on your situation.
Based on your minimum payment amounts, my estimate is that your debts are between $20,000 and $25,000. The fact that you have some money in savings tells me that you are serious about managing your finances. Trying to pay down your debt at this point won't work for you.
The key to successfully getting out of your debt situation is for your husband to get steady work. Anything less will not solve your problem. Although rumor has it that the economy is improving, it may be months or years before your husband is once again among the gainfully employed.
I recommend you place the $1,000 windfall into savings. The reason being, once you have gone through your cash reserves, you have no idea when you can replace them. So, add the $1,000 to your emergency savings and hope for the best -- that things will improve quickly -- but plan for the worst.
Beyond hoping for a break on the job front, there are a couple of things your husband can do that may increase his chances of getting a job. Many people don't know that it is routine for many employers to pull a copy of an applicant's credit report before making a job offer.
There are a number of good reasons to do this, some based on studies and others on personal opinion. Studies show that an employee with financial problems will likely be distracted and less productive at work. Also, bad credit may indicate poor judgment, irresponsible behavior or a lack of character in a new hire. The upshot is that many employers will not bother to ask why a credit report indicates a problem, they'll just move on to the next qualified candidate with a good credit record.
If he hasn't already, I suggest that your husband get a free copy of his credit report from the website AnnualCreditReport.com and look it over. He should dispute anything he doesn't recognize as well as any out-of-date or inaccurate entries. Then, when his report is as accurate as possible, he needs to develop a short and to-the-point explanation of why he has so much debt, what he is doing about it and why he's still a worthy hire.
Lastly, I recommend you contact your creditors and let them know your situation. Tell them you are having trouble meeting your monthly minimum payments due to unemployment. Ask what programs they may have available to help. Most creditors have some type of short-term (six months to a year or so) hardship program to help lower monthly payment amounts. Some even forgive some interest, fees or principal.
If you don't receive the help you need by contacting your creditors directly, you might consider contacting a nonprofit credit counseling agency for assistance. You can find a reputable agency by visiting the website of either the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. They may be able to get creditor concessions you can't, relieving some of your financial pressure.
Read more: Cashland payday loans Delaware Ohio
вторник, 29 марта 2011 г.
5 CARD Act gains
Many consumers have never heard of the law that brought about recent changes in credit card disclosures, offers and industry practices. In fact, just half of credit card holders report awareness of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, according to a 2011 survey from Synovate, a global market research firm.
Though the law rolled out in three main phases, the biggest round of provisions took effect on Feb. 22, 2010.
Here are five rights or protections consumers:
1)In the past, if you missed one payment to another creditor, your credit card issuer could jack the interest rate on your balance. The CARD Act banned this practice of "universal default" on existing balances. That is, issuers cannot increase the interest rate on existing credit card debt. There are four exceptions to this rule, however.
The law permits a rate increase on a balance if your payment is 60 days or more past due; if your account has a variable interest rate and the rate hike is due to index movement; if the increase is due to the expiration of a promotional interest rate; or if a workout agreement has ended. Rate hikes on existing debt for other reasons aren't allowed.
However, the issuer can raise the annual percentage rate on new charges after the first year following account opening, but must provide 45 days' advance notice of the change.
2)Before the law took effect, issuers could impose $39 late fees for past due payments regardless of the minimum payment amount. The Credit CARD Act changed this practice by requiring that penalty fees be "reasonable and proportional to the violation of the account terms." The Federal Reserve set safe harbor caps of $25 for the first violation and $35 for a repeat offense within six billing cycles. To go higher than those amounts, the issuer would have to prove that the costs it incurs as a result of the violation justifies a higher fee.
In addition, the penalty fee cannot exceed the dollar amount associated with the violation. For example, if the minimum required payment of $20 isn't paid on time, the issuer cannot charge a late fee of more than $20. Issuers can only charge a consumer one penalty fee for a single violation in a billing cycle.
3) If you had balances with different interest rates, it used to be the case that your issuer could apply your payment to your balances in whatever order it wished. So, if you had a balance transfer debt at a low introductory rate and a purchase debt at a higher rate, the issuer could apply your payment to the balance transfer debt first to maximize interest charges.
The new payment allocation rule in the CARD Act requires issuers to apply any payment above the minimum to the balance with the highest interest rate first, then to the balance with the next highest rate and so on until the payment is exhausted. To take advantage of this provision, you have to pay more than the minimum amount due.
4) The CARD Act permits card issuers to raise your interest rate if your account becomes 60 days delinquent. Yet the law includes a reward for good behavior. Pay your bill on time for the next six billing cycles and the rate increase must be terminated.
5) No longer can card issuers change the due date for payments from one month to the next or set an arbitrary cutoff time on the due date. The CARD Act requires that the due date be the same date each month, and the cutoff time be no earlier than 5 p.m the day the payment is due. In addition, issuers cannot treat a late payment as such unless it delivered the billing statement to the customer 21 days in advance of the due date.
Though the law rolled out in three main phases, the biggest round of provisions took effect on Feb. 22, 2010.
Here are five rights or protections consumers:
1)In the past, if you missed one payment to another creditor, your credit card issuer could jack the interest rate on your balance. The CARD Act banned this practice of "universal default" on existing balances. That is, issuers cannot increase the interest rate on existing credit card debt. There are four exceptions to this rule, however.
The law permits a rate increase on a balance if your payment is 60 days or more past due; if your account has a variable interest rate and the rate hike is due to index movement; if the increase is due to the expiration of a promotional interest rate; or if a workout agreement has ended. Rate hikes on existing debt for other reasons aren't allowed.
However, the issuer can raise the annual percentage rate on new charges after the first year following account opening, but must provide 45 days' advance notice of the change.
2)Before the law took effect, issuers could impose $39 late fees for past due payments regardless of the minimum payment amount. The Credit CARD Act changed this practice by requiring that penalty fees be "reasonable and proportional to the violation of the account terms." The Federal Reserve set safe harbor caps of $25 for the first violation and $35 for a repeat offense within six billing cycles. To go higher than those amounts, the issuer would have to prove that the costs it incurs as a result of the violation justifies a higher fee.
In addition, the penalty fee cannot exceed the dollar amount associated with the violation. For example, if the minimum required payment of $20 isn't paid on time, the issuer cannot charge a late fee of more than $20. Issuers can only charge a consumer one penalty fee for a single violation in a billing cycle.
3) If you had balances with different interest rates, it used to be the case that your issuer could apply your payment to your balances in whatever order it wished. So, if you had a balance transfer debt at a low introductory rate and a purchase debt at a higher rate, the issuer could apply your payment to the balance transfer debt first to maximize interest charges.
The new payment allocation rule in the CARD Act requires issuers to apply any payment above the minimum to the balance with the highest interest rate first, then to the balance with the next highest rate and so on until the payment is exhausted. To take advantage of this provision, you have to pay more than the minimum amount due.
4) The CARD Act permits card issuers to raise your interest rate if your account becomes 60 days delinquent. Yet the law includes a reward for good behavior. Pay your bill on time for the next six billing cycles and the rate increase must be terminated.
5) No longer can card issuers change the due date for payments from one month to the next or set an arbitrary cutoff time on the due date. The CARD Act requires that the due date be the same date each month, and the cutoff time be no earlier than 5 p.m the day the payment is due. In addition, issuers cannot treat a late payment as such unless it delivered the billing statement to the customer 21 days in advance of the due date.
понедельник, 28 марта 2011 г.
Fix your credit before seeking the car loan
Experts say the credit crunch is loosening. But to get the best interest rate on your car loan, your credit score needs to be as high as possible. These days only about 10 percent of applicants qualify for the zero- or low-interest promotions offered by manufacturers.
Here are three questions to ask before you fill out your first credit application for a new car.
What's your ratio of debt to the credit you've been extended? About a third of your credit score is based on the ratio of what you owe to the credit limits you've been extended on your credit cards. To get the best credit score, you want your ratio to be no higher than 20 percent, and ideally, closer to 10 percent. In other words, if you have $20,000 in credit extended to you, you want to owe no more than $4,000. Your overall ratio and the ratios per card are assessed, so you can improve this ratio by spreading your debt out over more credit cards and applying for an additional card (which will cause your score to drop initially, but will rebound shortly).
Have you made a payment more than 30 days late? Another third of your credit score is based on how timely you are with making payments. Lenders won't report late payments to the credit bureaus unless they are at least 30 days late. If it is reported, it could lower a high credit score by as much as 100 points. If you must complete a car loan application with a missed payment on record and you don't have a history of late payments, you can call the company and ask if they'll make an adjustment to their report, but don't count on them to say yes.
How long is your credit history? Credit history makes up about 15 percent of the overall credit score. The more years you can show that you have been responsible in managing your credit, the better your credit score. As a result, it's best to keep your oldest credit accounts active, even if you use them only minimally, since closing them will affect your credit score negatively. If you are someone who has a short credit history, then you may get a better car loan rate in a few years, though remember that the credit ratio and timeliness of payments make up about two-thirds of your overall credit score.
Once you know the answers to the above questions, order your credit report from each of the three reporting bureaus. Everyone is entitled to a free credit report from each bureau annually from AnnualCreditReport.com, but these don't contain credit scores.
Go over the reports carefully, making sure it's 100 percent accurate. Follow the instructions that accompany the credit report to correct any errors, especially ones that relate to late payments, credit limits and balances carried and length of time each account has been open, as these are the items that have the greatest impact on your credit score and your car loan. After checking your free credit report for errors, buying one report with a credit score is a good idea.
Here are three questions to ask before you fill out your first credit application for a new car.
What's your ratio of debt to the credit you've been extended? About a third of your credit score is based on the ratio of what you owe to the credit limits you've been extended on your credit cards. To get the best credit score, you want your ratio to be no higher than 20 percent, and ideally, closer to 10 percent. In other words, if you have $20,000 in credit extended to you, you want to owe no more than $4,000. Your overall ratio and the ratios per card are assessed, so you can improve this ratio by spreading your debt out over more credit cards and applying for an additional card (which will cause your score to drop initially, but will rebound shortly).
Have you made a payment more than 30 days late? Another third of your credit score is based on how timely you are with making payments. Lenders won't report late payments to the credit bureaus unless they are at least 30 days late. If it is reported, it could lower a high credit score by as much as 100 points. If you must complete a car loan application with a missed payment on record and you don't have a history of late payments, you can call the company and ask if they'll make an adjustment to their report, but don't count on them to say yes.
How long is your credit history? Credit history makes up about 15 percent of the overall credit score. The more years you can show that you have been responsible in managing your credit, the better your credit score. As a result, it's best to keep your oldest credit accounts active, even if you use them only minimally, since closing them will affect your credit score negatively. If you are someone who has a short credit history, then you may get a better car loan rate in a few years, though remember that the credit ratio and timeliness of payments make up about two-thirds of your overall credit score.
Once you know the answers to the above questions, order your credit report from each of the three reporting bureaus. Everyone is entitled to a free credit report from each bureau annually from AnnualCreditReport.com, but these don't contain credit scores.
Go over the reports carefully, making sure it's 100 percent accurate. Follow the instructions that accompany the credit report to correct any errors, especially ones that relate to late payments, credit limits and balances carried and length of time each account has been open, as these are the items that have the greatest impact on your credit score and your car loan. After checking your free credit report for errors, buying one report with a credit score is a good idea.
понедельник, 21 марта 2011 г.
Incentives cut on Japanese cars
That didn't take long.
The aftershocks of the disaster in Japan are beginning to reverberate in the U.S. auto market. American auto dealers selling Japanese brands like Honda and Toyota are cutting incentives on models affected by factory shutdowns in Japan. From the Associated Press:
Buyers will typically have to pay sticker prices, instead of enjoying discounts that had been the norm for small cars and hybrids imported from Japan. Besides the Prius, models that suddenly cost more include Honda's Insight, Fit and CR-V; Toyota's Yaris; and several Acuras and Infinitis.
The aftershocks of the disaster in Japan are beginning to reverberate in the U.S. auto market.
Small cars such as the Yaris, with a $12,955 sticker price for a base model, and the Honda Insight, priced at $18,200, are losing their typical discounts of 5 percent to 10 percent.
The price increases "will last weeks, if not months," says Jesse Toprak, vice president of industry trends and insights for TrueCar.com, a website that tracks what cars sell for at dealerships.
I've got mixed feelings on this. On one hand, you never like to see retailers raising prices in the wake of a horrible, deadly natural disaster. As political consultants are wont to say, the optics are terrible.
On the other hand, I kind of sympathize with the dealers. They're losing some of their most fuel-efficient models just as gas prices are rising and demand is ramping up. Sure, it's possible that the nuclear crisis will be resolved in short order; Japanese automakers' factories will come back online quickly, and shipping infrastructure will be ready to go sooner than we think. But I doubt it.
More likely, I think the supply of all Japanese cars will be constrained to varying degrees for the rest of the year, and dealers will have to live with reduced volume that will likely end up doing a lot of damage to their businesses. That's especially true when you consider that the fewer cars a dealership is able to sell, the fewer cars they'll be able to make money servicing in the long term, and the more market share they're giving up to rivals unaffected by the disaster. What this move probably reflects is dealers trying to make the most out of the inventory they still have on hand while it lasts.
What do you think? Should dealers of Japanese brands be raising prices? Is it gouging or just prudent business?
The aftershocks of the disaster in Japan are beginning to reverberate in the U.S. auto market. American auto dealers selling Japanese brands like Honda and Toyota are cutting incentives on models affected by factory shutdowns in Japan. From the Associated Press:
Buyers will typically have to pay sticker prices, instead of enjoying discounts that had been the norm for small cars and hybrids imported from Japan. Besides the Prius, models that suddenly cost more include Honda's Insight, Fit and CR-V; Toyota's Yaris; and several Acuras and Infinitis.
The aftershocks of the disaster in Japan are beginning to reverberate in the U.S. auto market.
Small cars such as the Yaris, with a $12,955 sticker price for a base model, and the Honda Insight, priced at $18,200, are losing their typical discounts of 5 percent to 10 percent.
The price increases "will last weeks, if not months," says Jesse Toprak, vice president of industry trends and insights for TrueCar.com, a website that tracks what cars sell for at dealerships.
I've got mixed feelings on this. On one hand, you never like to see retailers raising prices in the wake of a horrible, deadly natural disaster. As political consultants are wont to say, the optics are terrible.
On the other hand, I kind of sympathize with the dealers. They're losing some of their most fuel-efficient models just as gas prices are rising and demand is ramping up. Sure, it's possible that the nuclear crisis will be resolved in short order; Japanese automakers' factories will come back online quickly, and shipping infrastructure will be ready to go sooner than we think. But I doubt it.
More likely, I think the supply of all Japanese cars will be constrained to varying degrees for the rest of the year, and dealers will have to live with reduced volume that will likely end up doing a lot of damage to their businesses. That's especially true when you consider that the fewer cars a dealership is able to sell, the fewer cars they'll be able to make money servicing in the long term, and the more market share they're giving up to rivals unaffected by the disaster. What this move probably reflects is dealers trying to make the most out of the inventory they still have on hand while it lasts.
What do you think? Should dealers of Japanese brands be raising prices? Is it gouging or just prudent business?
суббота, 19 марта 2011 г.
Higher rates make HELOCs less appealing
Q: Dear Dr. Don,
I will pay off my mortgage in February 2010. Should I open a home equity line of credit now, in case I need extra funds for home improvements in the future? I am 39. My home is assessed at $310,000.
Jennifer Juncture
A: Dear Jennifer,
The good part about getting the line approved while your first mortgage is still in place is that you should have lower closing costs on the HELOC than if you wait until after you pay off the first mortgage. That's because with no first mortgage in place, the HELOC is, in effect, a first mortgage and may have higher closing costs because of it.
The bad part is if you're required to take money out at closing, you'll be paying interest on money you don't have any immediate plans on using.
A HELOC can be a sound financial backstop. However, some lenders are now reducing or pulling these lines out from under homeowners whose properties have declined in appraised value. With plenty of equity in your home, you shouldn't have that issue. But of course, you're not looking to use the HELOC for this reason -- instead, you want the line in case you need to make unscheduled future home improvements.
In general, it makes more sense to use a home equity loan instead of a HELOC to fund home improvements, unless you plan on taking out the HELOC in a refinancing after the improvements are completed. Bankrate's "Home equity loan vs. line of credit?" interactive worksheet can help you decide.
Assessed value determines how the home is taxed. This figure may have little to do with the home's appraised value. I'm going to assume the home's appraised value is at least as much as its assessed value. If it's not, you should take that up with your local tax collector.
A HELOC is an adjustable-rate loan with the interest rate generally tied to the prime rate, which is currently at 3.25 percent. As I write this reply, Bankrate's national average for a HELOC is 5.58 percent. That compares to 8.57 percent for a home equity loan, which is a fixed-rate loan.
While a home equity loan often is a great option for funding home improvements, it isn't likely to be right for you because you're uncertain as to when you'll want to spend money on the home improvements.
While 5.58 percent doesn't seem like a bad rate, historically HELOCs have been priced right on top of the prime rate. Paying roughly prime plus 2.25 percent is a horrible deal if interest rates start to go higher. The 2.25 percent is known as the "pricing spread" to the index. When the prime rate changes, the HELOC's rate also changes at the next reset date. The rate changes to the new prime rate, plus the pricing spread.
Use Bankrate's Compare interest rates feature to find rates in your market and look for lenders offering a rate with a narrow pricing spread.
Congratulations for being on track to pay off your mortgage in your late 30s, early 40s. I often suggest that it's a sound financial goal to pay off your mortgage before you retire. You've done well.
I will pay off my mortgage in February 2010. Should I open a home equity line of credit now, in case I need extra funds for home improvements in the future? I am 39. My home is assessed at $310,000.
Jennifer Juncture
A: Dear Jennifer,
The good part about getting the line approved while your first mortgage is still in place is that you should have lower closing costs on the HELOC than if you wait until after you pay off the first mortgage. That's because with no first mortgage in place, the HELOC is, in effect, a first mortgage and may have higher closing costs because of it.
The bad part is if you're required to take money out at closing, you'll be paying interest on money you don't have any immediate plans on using.
A HELOC can be a sound financial backstop. However, some lenders are now reducing or pulling these lines out from under homeowners whose properties have declined in appraised value. With plenty of equity in your home, you shouldn't have that issue. But of course, you're not looking to use the HELOC for this reason -- instead, you want the line in case you need to make unscheduled future home improvements.
In general, it makes more sense to use a home equity loan instead of a HELOC to fund home improvements, unless you plan on taking out the HELOC in a refinancing after the improvements are completed. Bankrate's "Home equity loan vs. line of credit?" interactive worksheet can help you decide.
Assessed value determines how the home is taxed. This figure may have little to do with the home's appraised value. I'm going to assume the home's appraised value is at least as much as its assessed value. If it's not, you should take that up with your local tax collector.
A HELOC is an adjustable-rate loan with the interest rate generally tied to the prime rate, which is currently at 3.25 percent. As I write this reply, Bankrate's national average for a HELOC is 5.58 percent. That compares to 8.57 percent for a home equity loan, which is a fixed-rate loan.
While a home equity loan often is a great option for funding home improvements, it isn't likely to be right for you because you're uncertain as to when you'll want to spend money on the home improvements.
While 5.58 percent doesn't seem like a bad rate, historically HELOCs have been priced right on top of the prime rate. Paying roughly prime plus 2.25 percent is a horrible deal if interest rates start to go higher. The 2.25 percent is known as the "pricing spread" to the index. When the prime rate changes, the HELOC's rate also changes at the next reset date. The rate changes to the new prime rate, plus the pricing spread.
Use Bankrate's Compare interest rates feature to find rates in your market and look for lenders offering a rate with a narrow pricing spread.
Congratulations for being on track to pay off your mortgage in your late 30s, early 40s. I often suggest that it's a sound financial goal to pay off your mortgage before you retire. You've done well.
четверг, 3 марта 2011 г.
Rules for refinancing after bankruptcy
Question:
Dear Dr. Don,
We currently have a 30-year conventional mortgage at 7 percent, with a loan balance of $192,000. We have never, ever, missed or been late on a mortgage payment.
What are the rules regarding refinancing after a Chapter 7 bankruptcy when it has been two full years since the bankruptcy was discharged? What kind of interest rate could we get for a traditional conventional loan vs. FHA for a 15-year fixed rate loan with credit scores of 720 and 665? We would not require any cash out and other than our mortgage, we are debt free.
Answer:
Dear Meg,
Fannie Mae and Freddie Mac require four years from either the dismissal date or the discharge date for a Chapter 7 bankruptcy, so getting approved for a conventional loan just two years out isn't in the cards. The Federal Housing Administration discusses its underwriting standard in a FAQ on its website:
Question:
How does a bankruptcy affect a borrower's eligibility for an FHA mortgage?
Answer:
A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations. The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs. An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner.
Additionally, the lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur.
Your credit scores meet the standards for FHA refinancing. These standards were recently updated in "Mortgagee Letter 10-29," which states: "Borrowers with a minimum decision credit score at or above 580 are eligible for maximum financing."
Since you're not looking for cash-out at closing, you should qualify for FHA streamlined refinancing. The Department of Housing and Urban Development Web page "Streamline Your FHA Mortgage" discusses this loan program.
Bankrate doesn't report FHA loan rates, but you can use Bankrate's weekly averages for national mortgage rates to evaluate the rate you're offered on your FHA mortgage.
Dear Dr. Don,
We currently have a 30-year conventional mortgage at 7 percent, with a loan balance of $192,000. We have never, ever, missed or been late on a mortgage payment.
What are the rules regarding refinancing after a Chapter 7 bankruptcy when it has been two full years since the bankruptcy was discharged? What kind of interest rate could we get for a traditional conventional loan vs. FHA for a 15-year fixed rate loan with credit scores of 720 and 665? We would not require any cash out and other than our mortgage, we are debt free.
Answer:
Dear Meg,
Fannie Mae and Freddie Mac require four years from either the dismissal date or the discharge date for a Chapter 7 bankruptcy, so getting approved for a conventional loan just two years out isn't in the cards. The Federal Housing Administration discusses its underwriting standard in a FAQ on its website:
Question:
How does a bankruptcy affect a borrower's eligibility for an FHA mortgage?
Answer:
A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations. The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs. An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner.
Additionally, the lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur.
Your credit scores meet the standards for FHA refinancing. These standards were recently updated in "Mortgagee Letter 10-29," which states: "Borrowers with a minimum decision credit score at or above 580 are eligible for maximum financing."
Since you're not looking for cash-out at closing, you should qualify for FHA streamlined refinancing. The Department of Housing and Urban Development Web page "Streamline Your FHA Mortgage" discusses this loan program.
Bankrate doesn't report FHA loan rates, but you can use Bankrate's weekly averages for national mortgage rates to evaluate the rate you're offered on your FHA mortgage.
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