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
Показаны сообщения с ярлыком Dr. Don Taylor. Показать все сообщения
Показаны сообщения с ярлыком Dr. Don Taylor. Показать все сообщения
четверг, 7 апреля 2011 г.
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.
вторник, 1 марта 2011 г.
Refinancing without home equity
Q: Dear Dr. Don,
I bought my house in 2005 for $375,000 and the interest rate on the mortgage is 5.25 percent. I put 10 percent down and pay PMI (private mortgage insurance). The principal that I owe on my house is approximately $308,000. I am thinking about refinancing to a 15-year fixed-rate mortgage. My wife and I earn approximately $180,000 combined a year and have excellent credit. The problems I have are that due to the economy, I don't have 20 percent equity, and I am not sure how long I am going to stay in this house. I need advice.
-- Joe Jericho
A: Dear Joe,
Not having 20 percent equity puts you in the position to need PMI on the refinance as well, assuming you have enough equity to qualify for a mortgage. If you don't, you can consider a cash-in refinancing, where you put additional money down at closing to qualify for the loan. The Bankrate feature, "'Cash-in' refinance activity skyrockets," provides more detail about this approach.
You're paying PMI now, so continuing to pay PMI on the refinancing, while not optimal, shouldn't add much, if anything, to your monthly mortgage payment. Capturing a lower interest rate is the real attraction in moving to a 15-year fixed rate mortgage.
By incorporating the cost of the PMI into the refinancing decision, you can still use a refinance calculator to estimate whether it makes sense to refinance, given the amount of time you plan to be in the house. Bankrate's refinance mortgage calculators will help you with that calculation.
You could also look into a Federal Housing Administration, or FHA, mortgage. You can qualify for this mortgage with a lower down payment. You still have a monthly mortgage insurance premium, or MIP, and will pay an insurance premium at closing for this type of mortgage. The FHA Frequently Asked Questions page on the Department of Housing and Urban Development, or HUD, website will give you an overview on this type of mortgage loan.
I bought my house in 2005 for $375,000 and the interest rate on the mortgage is 5.25 percent. I put 10 percent down and pay PMI (private mortgage insurance). The principal that I owe on my house is approximately $308,000. I am thinking about refinancing to a 15-year fixed-rate mortgage. My wife and I earn approximately $180,000 combined a year and have excellent credit. The problems I have are that due to the economy, I don't have 20 percent equity, and I am not sure how long I am going to stay in this house. I need advice.
-- Joe Jericho
A: Dear Joe,
Not having 20 percent equity puts you in the position to need PMI on the refinance as well, assuming you have enough equity to qualify for a mortgage. If you don't, you can consider a cash-in refinancing, where you put additional money down at closing to qualify for the loan. The Bankrate feature, "'Cash-in' refinance activity skyrockets," provides more detail about this approach.
You're paying PMI now, so continuing to pay PMI on the refinancing, while not optimal, shouldn't add much, if anything, to your monthly mortgage payment. Capturing a lower interest rate is the real attraction in moving to a 15-year fixed rate mortgage.
By incorporating the cost of the PMI into the refinancing decision, you can still use a refinance calculator to estimate whether it makes sense to refinance, given the amount of time you plan to be in the house. Bankrate's refinance mortgage calculators will help you with that calculation.
You could also look into a Federal Housing Administration, or FHA, mortgage. You can qualify for this mortgage with a lower down payment. You still have a monthly mortgage insurance premium, or MIP, and will pay an insurance premium at closing for this type of mortgage. The FHA Frequently Asked Questions page on the Department of Housing and Urban Development, or HUD, website will give you an overview on this type of mortgage loan.
Подписаться на:
Сообщения (Atom)