Saturday, December 22, 2007

When To Re-mortgage

If you are struggling to keep up with mortgage payments, or just feel you are paying over the odds on your home loan, then re-mortgaging may be the answer. It can give you lower monthly payments and even save you money in the long-term so there is little to be lost from at least exploring the possibility. But once you have decided to re-mortgage, where do you start?

The first thing to do is to check the terms and conditions of your existing mortgage. This will tell if you are tied in to your deal and it there are any redemption penalties or early repayment charges. This will give you an idea of how much it will cost to re-mortgage, and whether it will be worth if for you to do so. If you are locked in to your current deal, it becomes a case of working out whether you will save money by switching to a different rate, or whether you are better served by staying put until the penalties expire. Do not forget that a new lender will value your house and then charge an arrangement fee on top which can cost more than £1,000.

If you have been with your existing lender for a long time then doing this research is often particularly worthwhile. Long-term loyalty to a lender is not often rewarded with a reduction in rates, and shopping around may well save you money.

Of course re-mortgaging is not only about saving money on your existing deal, and can be an economical way of borrowing money. Equity – the value of your home minus the value of outstanding mortgage payments – is your money, and many lenders will let you borrow against it. Releasing equity is often cheaper than taking out a personal loan but it is nevertheless important to be careful.

Though borrowing through your mortgage in this way may be cheaper than taking out a loan, the debt you incur will be secured on your home. If you are unable to keep up with these additional payments you could wind up losing your home, so this option needs careful consideration – especially if you are already struggling to meet demands.

As with all financial products, there are a million deals out there, all accompanied by a bewildering stream of small print. Before you sign a contract you should be presented with a key facts document which outlines all the mortgage charges and small print in plain English. Always go through it carefully, and never be afraid to ask your broker to explain exactly what all of it means

You can also help yourself by avoiding deals with extended redemption penalties. These were being phased out until recently, when a number of lenders reintroduced extended penalties to counter ‘rate tarts’ who chop and change between providers to get a better deal. Getting trapped by these extended deals will prevent you from re-mortgaging again in the future, and as this whole process has shown, there often better deal to be found elsewhere. Extended redemption penalties are often hidden in the small print of contracts so make sure you check carefully. As with anything else you are not sure about - ask.


Sunday, December 9, 2007

No Cost Mortgage - A Real Deal Or Not?

With the onset of 2008 we have seen mortgage interest rates begin to fall. When mortgage rates fall, misleading mortgage advertising schemes seem to show up in the media all around us. For example, I recently watched an advertisement on Television for “The Real No Cost Mortgage”. I shudder each time I see or hear advertising about this type of mortgage because it is misleading and deceptive. The sadness in this for me as a 12 year mortgage broker veteran is that this type of advertising is indicative the bad apples that contributed to a great degree to the mortgage industry meltdown in 2007. I am going to say it right off the bat: There Are No “No Cost Mortgages” on the Planet!” Is this clear? All mortgages have costs associated with them. This is the end of the story.

Most “no cost mortgage” loan programs are designed the same way: the interest rate of your loan is increased to cover the costs associated with your mortgage. There are a select few mortgages that have very little costs associated with them: these are home equity lines of credit – or HELOCS. Often you can get these little or no cost loans at your local credit union or small community bank. Additionally, these loans typically only allow you borrow up to about 90% of your home’s value. Credit Unions are small enough that they perhaps can offer to pay some of your costs as a courtesy to earn your business. The larger banks simply cannot pay or give you these costs for free or it would set them back a few dollars.

With these small second mortgages and HELOCS aside, the rest of the mortgage market is primarily made up of larger first mortgages. As I previously stated, these mortgages have costs associated with them such as: paying a processor to process your loan, the cost for an appraisal, the underwriter, the title insurance policy, your credit report, tax and insurance escrows, and of course the money that your loan officer makes in commission. All of these fees in one form or another get paid, and guess who pays them? That’s right, you do. You will pay these fees one way or another.

So what is the catch to this type of advertising? As I previous pointed out, the mortgage company charges you a higher interest rate. If you are paying a higher interest rate, then your monthly payment is higher. So your higher payment month after month pays your closing costs over time. Now, this is not necessarily a bad thing if you know what you are getting into. Where I have a beef with this type of advertising is that it is not telling you the whole truth. You do have closing costs and the mortgage company is charging you a higher interest rate to compensate for those fees – and they do not tell you this in the advertising. They lead you down some fantasy of a no cost mortgage, or a free mortgage, and ultimately charge you a higher interest rate than you would normally get if you paid your costs either with your loan proceeds in a refinance or out of your pocket in a purchase mortgage. The misleading advertising got you to call them.

Initially, this loan can be good if you are low on cash. Hey, it is not a bad loan in the short term. Let’s just say that the interest rate that they charge you increases your monthly payment $150 a month for a no cost mortgage. After 30 months, or 2.5 years you have paid $4,500 extra. What if that was the amount of your closing costs when you first got the deal? Well, for the first 30 months you saved money and were better off. However, once you hit month 31, you are now paying more for your mortgage’s closing costs than you would have if you had paid them up front when you got the mortgage.

Another thing to be careful about with this type of mortgage is that it is very easy for a mortgage company to charge you more than might have been able to charge you because their profit is made in the interest rate and in the slightly higher interest rates. With this said, it is hard to tell how much a mortgage company makes on your loan given your payment increases slightly over what you could have been paying if you had paid your own closing costs.

So, the next time you hear of this kind of mortgage program, make sure you ask about the difference in your monthly payment between paying your own closing costs, or for paying a higher interest rate. If you know you are only going to be in the home for a few years and then you are going to sell the home, then a no closing cost mortgage might good for you. If you are planning on staying longer and you know you are going to refinance in the near future, then this loan might be good for you too. But, if you do not want to refinance in the future, or be forced to have to refinance to get out of a no cost mortgage when it starts costing you money then the no cost mortgage probably is not right for you. Make sure you take a look at all your options. Do not let a slick mortgage person tell you that this loan saves you money – as this is not necessarily the case.


Friday, December 7, 2007

First Rung Of The Property Ladder

Buying your first home is both an exciting and daunting experience. You feel the thrill of finally getting on the property ladder, as perhaps a part of you actually feels like you’re finally an adult. But where do you start?

Firstly, you have to find out how much you can borrow, and get approval for a mortgage. There’s a whole range of mortgages out there, but in many cases a first-time buyer may require a 100% mortgage. However, this means you borrow the full price of the property without the need for a deposit, but you may have to pay a Higher Lending Charge which protects the lender against any loss should you default on payments and they need to sell the property. If property prices fall you may also have a mortgage that is higher than the actual value of your property on the open market, this is called Negative Equity.

An interest only mortgage requires you to just pay off the interest each month, rather than the capital you’ve borrowed. You are also recommended to pay a monthly sum into an ISA or some type of investment, the idea being that you will have sufficient funds at the end of the mortgage term to be able to repay the mortgage off in full. Some people with interest-only mortgages only pay off the interest, relying on their house being high enough in value to pay off the capital at the end of the term. This can be risky as there are no guarantees as to what house prices will be in 20 or 30 years time.

The most common mortgage in the UK is the repayment mortgage. These require you to pay off the interest plus a portion of the capital each month, with the guarantee that you will have paid off the whole sum at the end of the term. Repayment mortgages are useful if you can be confident of having a relatively steady income throughout the term, and taking out a fixed or capped mortgage can save you from rising interest rates.

Whatever type of mortgage you choose, be sure to pay the required amount per month or you could find yourself homeless. Mortgage lenders will repossess your home if you don’t keep up the payments.


Saturday, December 1, 2007

Stop Foreclosure - How To Avoid The Foreclosure Process

That's where this article comes into the picture. I will show you some of the most common (and effective) ways to stop foreclosure on a home mortgage, in hopes that it will help you avoid foreclosure if that kind of situation ever befalls you.

How to Avoid Mortgage Foreclosure

There are actually several ways you can stop home foreclosure before it happens. As we talk about the different ways to avoid foreclosure on a home, there's one thing you need to keep in mind. Mortgage lenders will usually want to avoid foreclosing on your home as much as you want to avoid it -- or nearly as much, anyway. Lenders are in the business of lending money, not managing and selling properties.

Keep that in mind when we discuss ways how you can avoid foreclosure of your home. Don't adopt an "us against them" mentality with regard to your lender. Because chances are, they want you to avoid foreclosure too!

1. Learn Your Foreclosure LawsThe first step to avoiding a mortgage foreclosure is to educate yourself on the foreclosure process in your state, and that includes the laws associated with foreclosures in your state. Once you understand these procedures and laws, you'll better understand how you can avoid foreclosure on your home.

2. Contact Your Lender ASAPRemember, your mortgage lender does not want your house. They want to keep their hands off it as much as possible, and would prefer to keep you making payments if possible. With the current spike in mortgage foreclosures in the U.S., many lenders are going out of their way to help homeowners avoid the foreclosure process. So it's a safe bet that your mortgage lender has payment options and plans that can help you stop foreclosure altogether. Contact them!

3. Talk to a HUD Housing CounselorSome of your tax dollars go toward the Department of Housing and Urban Development (HUD). So you might as well use their services whenever possible. Fortunately, HUD has a number of well-trained "housing counselors" spread throughout the country. Every day, these counselors help hundreds of homeowners like you avoid a home foreclosure process. And there's a good chance they can help you too. To find a HUD housing counselor near you, you can call their housing line at (800) 569-4287, or you can visit the state-by-state HUD directory available at the HUD website.

It's important to note that most of the HUD-approved housing counselors are free or cost very little. This is important because you want to put your money toward paying that mortgage -- you don't want to waste it by visiting a counselor who's going to charge a lot of money!

4. Review Your Mortgage "Workout" OptionsAre your financial problems temporary or permanent? If you are only having temporary problems, then you have more options for avoiding the foreclosure process. For example, talk to your lender about the following ways to stop foreclosure and get back on track:

  • Reinstatement: If your financial problems are temporary, and you think you'll be able to pay off the amount owed at a future date, then reinstatement might be a good way to stop foreclosure on your home. With this option, you and the lender agree on a future date in which you will pay off the amount owed (payments missed) as a lump sum.
  • Repayment Plans: This is another option that may help you avoid foreclosure altogether. Here, you and the lender agree on a payment plan that basically takes the money owed from missed payments and spreads it out over future payments. Thus, this is another option for you if your financial problems are only temporary.
  • Forbearance: This option is sometimes used in conjunction with the reinstatement option mentioned previously. Here, your mortgage lender lets you reduce or suspend payments for a period of time, after which another option will be used to bring the loan current (such as reinstatement).

"But what if my financial problems are more long-term? How can I stop and avoid foreclosure in that situation?"

The three foreclosure-avoidance options listed above are best suited for homeowners with only temporary financial problems. According to, here are some options for stopping foreclosure when your financial problems are long-term.

  • Modifying the Mortgage: If you can make payments on your loan, but don't have enough money to bring your account current or you can't afford your current payment, your lender may be able to change the terms of your original loan to make the payments more affordable. Your loan could be permanently changed in one or more of the following ways: (A) adding the missed payments to the existing loan balance, (B) changing the interest rate, sometimes even by converrting an adjustable rate mortgage into a fixed rate; and (C) extending the number of years allowed for repayment.
  • Partial Claim: If you have mortgage insurance (PMI) on your mortgage loan, you may be able to obtain a one-time, interest-free loan from the mortgage guarantor that would help you bring the loan current. Your lender may assist you with this process.

"But what if keeping my home is not an option? What can I do to stop foreclosure in that situation?"

All of the options mentioned previously are ways to avoid foreclosure while also keeping your home. If you simply cannot afford the mortgage any longer, will have to part with the home as a result, you still want to pay off that mortgage! Here are some ways to sell or transfer the home quickly in order to stop the foreclosure process.

  • Sale - Most mortgage lenders will agree to a specified period of time during which the homeowner (who can no longer afford to make payments) may try to sell the home. The key here is to find a real estate agent who specializes in pre-foreclosure quick sales, as you only have a limited time to sell the home before the lender moves forward with foreclosure.
  • Assumption - Your lender may also allow a qualified buyer to take of your mortgage loan. The end result of this process is the same as an outright sale in that somebody else takes on the mortgage, thus helping you stop foreclosure from going on your financial record.