When the base rate drops from 4.5% to 2% in less than a month, you might think switching from a fixed-rate mortgage to a tracker mortgage would be an easy decision. However, there are quite a few reasons it isn’t. Here are just three…

1) Margins

Not long ago, the interest rate on a tracker mortgage was higher than the base rate, but not much higher: trackers with a rate of ‘base rate + 0.3%’ aren't uncommon. Today, you’re more likely to see ‘base rate + 2%’.

With so many expecting the base rate to drop still further, mortgage providers are looking to protect themselves by increasing the ‘margin’ on their tracker mortgages – the difference between the base rate and the rate they’ll charge their customer.

So if a homeowner took out a ‘base rate + 0.3%’ tracker mortgage on 5 December 2007 (when the base rate was 5.5%), they’ll now be paying 2.3%.

But someone who took out a ‘base rate + 2%’ tracker mortgage on 5 December 2008 (when the base rate was 2%) will now be paying 4%.

2) Collars

Tracker mortgages do ‘track’ the base rate, but not necessarily all the way down. Many tracker deals come with a ‘collar’ or ‘floor’ – a minimum beyond which the rate will never fall, whatever happens to the base rate.

When the base rate is high, this isn’t likely to be an issue, but someone with a ‘base rate + 0.3%’ tracker mortgage would probably be irritated to find their mortgage’s collar means they’re paying 3%, rather than 2.3%.

3) The future

Whatever the margin, switching from a (for example) 5.6% fixed-rate mortgage to a (currently) 4% tracker deal still seems like a good idea – but is it really? This is dependant largely on three factors: how long the two mortgage deals will last, what kind of mortgages are available when they finish – and what happens to the Bank of England’s base rate in the meantime.

After all, someone on a five-year fixed-rate mortgage knows exactly what they’ll be paying four years from now. The person on the tracker mortgage has no such certainty: in the late-80s - early-90s, the base rate was consistently over 10% and actually reached 14.88%!

For anyone on a tracker, it’s tempting to think they could just switch to a fixed-rate deal if the base rate started climbing higher, but they might end up paying a substantial early repayment charge. Even more worrying – they might not be able to find a good fixed-rate deal. As the last year has demonstrated, there’s no guarantee that people looking for a new mortgage will be able to find one at the right time at the right price.

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Owning a home outright is a dream that many Americans share. Having a mortgage can be a huge burden, and paying it off may be the first item on your financial to-do list. But competing with the desire to own your home free and clear is your need to invest for retirement, your child’s college education, or some other goal. Putting extra cash toward one of these goals may mean sacrificing another. So how do you choose?

Evaluating the opportunity cost

Deciding between prepaying your mortgage and investing your extra cash isn’t easy, because each option has advantages and disadvantages. But you can start by weighing what you’ll gain financially by choosing one option against what you’ll give up. In economic terms, this is known as evaluating the opportunity cost.

Here’s an example. Let’s assume that you have a $300,000 balance and 20 years remaining on your 30-year mortgage, and you’re paying 6.25% interest.  If you were to put an extra $400 toward your mortgage each month, you would save approximately $62,000 in interest, and pay off your loan almost 6 years early.

By making extra payments and saving all of that interest, you’ll clearly be gaining a lot of financial ground.  But before you opt to prepay your mortgage, you still have to consider what you might be giving up by doing so–the opportunity to potentially profit even more from investing.

To determine if you would come out ahead if you invested your extra cash, start by looking at the after-tax rate of return you can expect from prepaying your mortgage. This is generally less than the interest rate you’re paying on your mortgage, once you take into account any tax deduction you receive for mortgage interest.  Once you’ve calculated that figure, compare it to the after-tax return you could receive by investing your extra cash.

For example, the after-tax cost of a 6.25% mortgage would be approximately 4.5% if you were in the 28% tax bracket and were able to deduct mortgage interest on your federal income tax return (the after-tax cost might be even lower if you were also able to deduct mortgage interest on your state income tax return). Could you receive a higher after-tax rate of return if you invested your money instead of prepaying your mortgage?

Keep in mind that the rate of return you’ll receive is directly related to the investments you choose. Investments with the potential for higher returns may expose you to more risk, so take this into account when making your decision.

Other points to consider

While evaluating the opportunity cost is important, you’ll also need to weigh many other factors. The following list of questions may help you decide which option is best for you, also visit http://kenhimmler.com/ for more strategies.

·          What’s your mortgage interest rate? The lower the rate on your mortgage, the greater the potential to receive a better return through investing.

·          Does your mortgage have a prepayment penalty? Most mortgages don’t, but check before making extra payments.

·          How long do you plan to stay in your home? The main benefit of prepaying your mortgage is the amount of interest you save over the long term; if you plan to move soon, there’s less value in putting more money toward your mortgage.

·          Will you have the discipline to invest your extra cash rather than spend it? If not, you might be better off making extra mortgage payments.

·          Do you have an emergency account to cover unexpected expenses? It doesn’t make sense to make extra mortgage payments now if you’ll be forced to borrow money at a higher interest rate later. And keep in mind that if your financial circumstances change–if you lose your job or suffer a disability, for example–you may have more trouble borrowing against your home equity.

·          How comfortable are you with debt? If you worry endlessly about it, give the emotional benefits of paying off your mortgage extra consideration.

·          Are you saddled with high balances on credit cards or personal loans? If so, it’s often better to pay off those debts first. The interest rate on consumer debt isn’t tax deductible, and is often far higher than either your mortgage interest rate or the rate of return you’re likely to receive on your investments.

·          Are you currently paying mortgage insurance? If you are, putting extra toward your mortgage until you’ve gained at least 20% equity in your home may make sense.

·          How will prepaying your mortgage affect your overall tax situation? For example, prepaying your mortgage (thus reducing your mortgage interest) could affect your ability to itemize deductions (this is especially true in the early years of your mortgage, when you’re likely to be paying more in interest).

·          Have you saved enough for retirement? If you haven’t, consider contributing the maximum allowable each year to tax-advantaged retirement accounts before prepaying your mortgage. This is especially important if you are receiving a generous employer match. For example, if you save 6% of your income, an employer match of 50% of what you contribute (i.e., 3% of your income) could potentially add thousands of extra dollars to your retirement account each year. Prepaying your mortgage may not be the savviest financial move if it means forgoing that match or shortchanging your retirement fund.

The middle ground

If you need to invest for an important goal, but you also want the satisfaction of paying down your mortgage, there’s no reason you can’t do both.  It’s as simple as allocating part of your available cash toward one goal, and putting the rest toward the other.  Even small adjustments can make a difference.  For example, you could potentially shave years off your mortgage by consistently making biweekly, instead of monthly, mortgage payments, or by putting any year-end bonuses or tax refunds toward your mortgage principal.

And remember, no matter what you decide now, you can always reprioritize your goals later to keep up with changes to your circumstances, market conditions, and interest rates.

For more information on financial planning, visit www.iamllc.biz 

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There have been many changes in the markets that support mortgages over the last ten years or so. Local lenders are quickly becoming just another home mortgage option for homeowners. Obtaining a refinance is now done online by most homeowners. There are many options out there ranging from large scale operations that are connecting borrowers with lenders, small scale websites tailored to the local market that are run by local brokers and direct lenders which are playing an increasingly large role in the online mortgage marketplace.

There are many large mortgage companies that we all know well. There ads are in magazines, on TV and just about everywhere else advertising is done. The giants of this industry will sell your information. This is when refinancing becomes overwhelming. You may receive more calls than you wish to be dealing with and it can make the process complicated. The calls will eventually slow down once you start telling them that you are not interested. This is a great concept because you can talk with several lenders and compare rates and fees, but it will require patience and time to handle your online refinancing with one of these sites.

The small local websites are another option for borrowers. There are many services that build simple websites for this scenario. This makes for a simple solution for borrowers that are seeking qualifying options. There is often a local office that you can go to and this will likely provide a higher lever of comfort when dealing with your refinance. These local professionals will generally have a higher rate and fees than a large wholesale or direct lender would offer with online refinancing. These professionals generally do not have access to as many funding options as larger operations. Your information will not be sold over and over if you work with one of these companies.

Websites have recently emerged from direct lenders in which case you will only be contacted by the lender directly. w. Current rates and fees can often be found on the front page of these websites. Your rate or fees may be higher to cover their costs. It costs a lot of money for these companies to build comprehensive systems and websites. The interest rate and fees will be raised to cover this additional overhead. Keep in mind that they also pay a lot of money to get you to their website. How did you find the last mortgage website that you went to? I bet that company paid money in some way, shape or form to get you to their site.

Hybrid sites are now becoming more popular for many homeowners. More and more homeowners are using these sites. Your information is leveraged by these websites to that you end up with the best deal possible. Hybrid sites will find the single best lender to handle your situation. They then deliver this information to that lender with the agreement that the lender will not charge you points or fees on your mortgage. You will only be contacted by the best lender for your situation and you can refinance online with no fees. This is growing in popularity for obvious reasons.

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Considering whether you need 30 or 15 year fixed mortgage rates is important for people looking to buy a home and concerned about their monthly payments. Many people wait until they are older before taking on the responsibility of a mortgage so an early payment of this large debt is an important issue to think about. But, before you commit yourself and sign any documents, there are points you need to think about. One important point is to ensure that the interest rate does not change during the life of the loan.

It is always wise to avoid agreements that do not appear to have any negative aspects because they invariably have but are hidden. For loans that have 15 year fixed mortgage rates, the same amount of interest is maintained throughout the life of the loan. This is always a good thing for those people that do not like surprises. My wife and I looked into the loans available with 15 year fixed mortgage rates when we were searching for a home for sale.

It was always our intention to clear our mortgage debt as early as we could but we did not want to over extend ourselves at the same time. It became obvious that we had to look at fixed rate mortgages over a longer period and not just 15 year plans. No-one likes the idea of having a mortgage when they are close to retirement, and we were no different, so it was still our hope that a 15 year fixed mortgage rate plan would still be an option. There was a lot of pressure to have the house paid off as soon as possible.

We thought about it long and hard and despite the pressure we decided to go with the 30 year loan plan. Many factors were taken into account when reaching this decision. Finding out my wife was having a baby made making the choice so much easier! The contribution my wife made to the monthly finances would be unreliable since she intended to raise our child at home. Unfortunately, a higher monthly payment was the downside for loans with a 15 year fixed mortgage rate. We could see the financial problem of getting in too deep even though there were benefits to a shorter loan period. The 30 year loan repayments were considerably lower than the 15 year figures.

Being able to make additional lump sum payments during the year means the outstanding loan reduces faster. Those few extra payments also help reduce the number of years you have to pay the loan over. This is well worth it in the long term but it does require some discipline. Our desire for a 15 year fixed rate mortgage was second place to our more immediate needs. Anyway, everything worked out fine despite our hesitancy.

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Now that reality has hit the US real estate market is, it would be a good thing to review and be ready for getting qualified for a home loan. No longer will a mortgage lender approve a loan just because the borrower can fog a mirror. Future homeowners as well as lenders will be going back to the basics of how loans were approved for the foreseeable future. What can we now expect for a loan application.

The Federal National Mortgage Association (also known as Fannie Mae) and Freddie Mac publish guidelines that mortgage lenders follow. Added to those guidelines, lenders may add their own guidelines as well. The guideline includes your credit score, your income, how much the property is worth, and the down payment.

Credit Score

Credit scores are computed using a specific computer model know as your FICO score. This model is based on your credit history.

Credit history information is collected and maintained by three providers: Equifax, TransUnion, and Experian. In your credit history you would find many items of personal information such as date of birth, address, Social Security number, any aliases you may have, your phone number and more. Not only personal information, but information pertaining to banks and credit card companies is found in your credit history. Lastly, publicly accessible information such as court filings and property records may be included.

As you can see, the information available in your credit history can be extensive. It might include every single charge card, loan, or any other form of credit you have had. For each loan, past and present, there is the amount of the loan, the payments history, and how much is currently owed.

An extensive amount of credit data is maintained by these credit history providers. Even though this information could stay on your credit records indefinitely, federal law requires that negative information be removed after seven years if requested. From this information, the FICO calculation is made to derive a score that will become a primary factor for your lender. Before the past few years in which the standards were lowered for loan applications, a score of at least 660 was typically required to qualify for most mortgage loans. Don’t be surprised – in this post-meltdown environment – to need a much higher score to secure a mortgage loan at a favorable interest rate. Needless to say, you should do everything you can to improve your FICO score. To improve your FICO score, it is easy to find help to get rid of credit card debt.

Provable Income

Next is your provable income, which is essential for the evaluation of the loan. Your income is provable by showing for the last two years your W-2s and your tax returns, as well as your last two paycheck stubs.

This is easy to prove for anyone with who has had a steady job. If you are self-employed or if the business that pays your income is greater than 25% owned by you, the proof is similar. For this, you would typically need copies of tax returns that indicate your business income.

The Property

A key element in the approval process is the property itself. Don’t forget, the property will become collateral for the loan. So, the lender must be assured – in the case of worse-case analysis – of the value of the home on the chance that the lender must foreclose at some future time. If this unfortunately happened, the lender would be selling the home, so properly assessing its value is essential.

The value of the home is assessed as an outcome of an appraisal. There are commonly accepted ways to find the value of the property. This is done by someone on staff with the lender or by a professional that is training in appraisals. For a single family home, usually the appraisal is performed by analyzing similar homes in the vicinity of the property in question. The analysis consists of a comparison of attributes of the home being purchased with similar homes recently purchased in the same neighborhood. Differences in prices vs amenities of recently sold homes and the one being appraised are compared to arrive at the value of the home.

The Down Payment

The amount needed for a down payment depends on the value of the mortgage, your income, the interest rate of the loan, as well as other factors. No matter the amount, however, you will also need to provide at least two months of bank statements as a part of your loan application. This is done to prove that the money did not appear suddenly in your account. The lender just wants to make sure that you did not get a loan from another source to use as your down payment. This includes drawing large sums from one or more credit card accounts and depositing the funds in your checking account.

On the other hand, it may be that someone gives you some or all of the money needed for the down payment. This can often happen, for example, when relatives help with some funds to be used for the down payment. If so, just have the relatives compose a letter indicating that the funds were given to you for the purpose of making the down payment.

Conclusion

These, then, are the main points for getting qualified for a loan for a new home. As you can see, the bar has been raised as to who can qualify for a mortgage loan. But, with a property that is within your financial qualifications, you should be able with a little patience to get the loan that you need.

I hope you find this helpful and if you are ever looking for homes for sale in Denton, be sure to look me up.

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When you are facing foreclosure it can sometimes seem like you have no where to turn and nobody you can talk to. Many people will advise that you hire expensive lawyers and you know that if you could afford to do that then you would be making your mortgage payments and you would not be dealing with foreclosure.

Anyone that may be staring foreclosure in the face can stop it with free foreclosure help. You can become desperate when you are looking to help stop foreclosure, but the best thing to do when you are trying to prevent foreclosure is to keep your cool and explore all of your options. Probably the best free advice you could ever get is to not panic and make sure that you have tried absolutely everything prior to throwing in the towel and abandoning your dream home.

Remember that the bank does not want your home, they want you to keep it and pay for it, so they would be more than happy to help stop foreclosure if they could. You could try and talk to your bank about your situation and see if they have any ways to help stop foreclosure but if that fails you do have options.

There are a lot of sick people out there and there are a lot of criminals and con artists that will try and steal what little you have left. Always check out any company with the Better Business Bureau and any other government agency that you can find before giving out your personal information. Unfortunately, people that help stop foreclosure are experiencing a growth spurt in their business and that means that there are criminals out there waiting to capitalize on that. Don’t let yourself become a scam victim, as you already have enough problems.

Working With Your Loan

There are organizations out there that are designed to help stop foreclosure by working within the legal parameters of your mortgage. There are rules that apply to every mortgage as each mortgage is in some way regulated by the government. These mortgage modification companies will talk with you for no charge, listen to your situation, and give you advice on what kind of options you have. With a few simple and free steps sometimes you can help stop foreclosure. Other times it can cost money and resources but the advice is free and you can at least find out where you stand.

When you are looking to help stop foreclosure, you can become frantic, but the best thing to do is to keep your calm and explore all of your choices…Read more free articles at http://www.foreclosures.jsgenterprises.com.

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Denver mortgage rates are some of the best in the country, so why haven’t you moved yet? Getting the best mortgage rate no matter where you choose to move is an important step in the financing process. Whether you are selecting your rate with the intent of selling in the next five years, or want to stay awhile, your mortgage rate can equal tens of thousands of dollars in savings.

When shopping for the best rate, the first step is to investigate the different lending opportunities. In the Denver area and around the country, there are many sources by which you can acquire a mortgage. Some examples of these sources are mortgage brokers, mortgage companies, savings and loan associations, commercial banks and credit unions.

A mortgage broker is different from the others, since they try to coordinating financing from several lenders. Due to the wide selection, you’ll have a better selection of loans and rates to choose from. However, this does not mean that one broker will solve all of your problems. Just like the lending institutions themselves, different brokers can yield different results. In fact, it is only mandatory for a broker to find the best deal for you once a contract has been setup stating that the broker is your agent. Everybody needs to get paid, and the mortgage broker does this by adding fees or points to the mortgage.

Besides a mortgage broker, the other factor in getting a low interest rate is to discuss with your lender and carefully consider all of the charges involved. When it comes to the rate itself, this can vary from bank to bank but is referenced by the prime lending rate across the country. It is for this very reason that the term “right time to buy” is tossed around by potential home buyers, as proper planning can capitalize on beneficial prime rate fluctuations, decisions that translate into thousands of dollars in savings.

Another way to lower your interest rate is with points. A percentage of your loan value, points represent the cost of getting a mortgage. The third factor to be aware of are the fees linked to the mortgage. Fees such as underwriting and closing are charged as services associated with the lending process. Usually borrowers are able to negotiate with the lender to adjust fees in exchange for interest rate adjustments. An example of this situation is a “no cost” loan, which lowers fees in exchange for higher interest rates.

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