Adjustable Rate Mortgages
Second Mortgages Can Cap Housing Costs
In these times of rising interest rates, second mortgages or first mortgage refinancing might be just the thing to keep your housing costs from going through the roof. In a recent article in Parade magazine, How To Save on Your Mortgage, Lynn Brenner considered the question,
Will Your Mortgage Rate Go Up?
If you have a fixed-rate mortgage, you have nothing to worry about. But millions of home owners are sitting on a financial time bomb: Their monthly payments are preset to skyrocket sometime in the next 18 months. These owners have hybrid adjustable rate mortgages (ARMs), which start with a fixed rate for three to 10 years but later are adjusted annually.
Lets say you bought a house in 2003 with a 200,000 three-year hybrid ARM. For the first three years, your rate was about 3.8% and your monthly payment was 930. But this year, your rate could be reset to 7.3%, says Greg McBride, senior analyst at Bankrate.com, a personal finance site. That means your monthly payment could jump to 1,334.
Brenner goes on to recommend that, If you have an adjustable rate mortgage thats due to adjust this year or in 2007, consider refinancing. Taking out a new loan with different terms and paying off the old one can save you money. Refinancing does not make sense for everyone, however. If you intend to move in a year or two, for example, you may not save enough to recoup the costs of refinancingusually about 1.5% to 2% of the loan.
If you plan to stay in your house 10 years or longer, a fixed-rate mortgage is worth the extra cost to avoid rate increases. A hybrid ARM is a little less expensive, but you are vulnerable to future rate hikes, so look for one whose fixed rate lasts as long as you expect to stay in the house.
Benefits of Fixed-Rate Second Mortgages
Fixed-rate second mortgages can be less expensive than refinancing first mortgages. They usually have lower annual percentage rates (APR) than other forms of borrowing and they can save on taxes because the interest on mortgages is deductible. Second mortgages are also easier to get than unsecured loans or lines of credit.
Like a first mortgage, a second mortgage payment consists of principal and interest. Unlike a first mortgage, nothing is put into escrow to cover expenses such as homeowner insurance, property taxes and Private Mortgage Insurance.
Applying for a second mortgage is often faster than refinancing a first mortgage and requires a lot les paperwork. Its safe and secure to apply online from the convenience of your own home.
Mortgages as Products
Mortgages are products, just like automobiles or new living room furniturejust a whole lot more expensive. A home is often the largest financial transaction people ever undertake. Before signing the loan papers, get information from several lenders. Compare all the important information such as interest rates, discount points, closing costs, legal fees, title and insurance, etc.
If you have bad credit, you will be charged a higher interest rate, but according to The Equal Credit Opportunity Act, you cannot be denied a loan on the basis of race, color, religion, national origin, sex, marital status or age.
To get current rates on mortgage refinancing, visit www.easysecondmortgages.com. For a competitive second mortgage quote, check out www.easymortgagerefinancing.com.
Mortgage Refinancing Basics
Your mortgage may have a 30-year term, but not many homeowners stay with the same loan for that long. In fact, the average American refinances his or her mortgage every four years, according to the Mortgage Bankers Association. Thats because paying off your present mortgage and taking out a new one can mean big savings over several years. However, refinancing comes with a price in the short term, so its important to consider both the costs and benefits before making your decision.
Why refinance?
Here are some reasons to consider refinancing your mortgage:
1. To obtain a lower fixed rate. If you took out a fixed-rate mortgage several years ago and interest rates have since dropped, refinancing may lower your payments considerably. A 150,000 mortgage with a 30-year term and a rate of 8 percent, for example, carries a monthly payment of 1,100. The same mortgage at 6 percent will have a payment of less than 900 a month.
2. To switch to a fixed rate or an adjustable rate mortgage. Adjustable-rate mortgages (ARMs) offer lower interest rates initially, but some homeowners find the fluctuations stressful. If rates are on the way up, you might consider locking in at a fixed rate and consistent monthly payment. On the other hand, if you want to reduce your monthly payments and are comfortable with the interest rate changes of an ARM, it could save you money to refinance to an ARM.
3. To reduce your monthly payments. Refinancing for a longer term will lower the amount you have to pay each month. You will end up paying more in interest charges over the life of your loan, but if youre having difficulty making your current payments, this strategy could provide some relief.
4. To turn home equity into cash. You may want to take out a new mortgage with a larger principal, in order to turn some of your home equity into cash for a major expense. This is called cash-out refinancing. The advantage of taking out a loan secured by your home is that you can get a lower rate of interest than you can with an unsecured loan or credit card. However, if the interest rate offered for your refinanced mortgage is higher than your current rate, a home equity loan or line of credit might be a better choice.
Is refinancing right for you?
If youre refinancing in order to pay less interest, you wont usually see the savings right away. Thats because lenders typically charge fees when you take out a new mortgage, and you may also have to pay a penalty for getting out of your old one. To determine whether refinancing makes financial sense for you, consider these issues:
1. How long you plan to be in your home. If you expect to move in a year or two, you may never realize the potential savings youd get from refinancing. As a rule of thumb, the longer you plan to stay in your current home, the more sense it makes to refinance.
2. The prepayment penalty on your current mortgage. Many mortgages carry a penalty if you pay them off early. The amount varies, but it is usually a small percentage of the outstanding balance, or several months worth of interest payments.
3. The costs of the new mortgage. When you take out a new loan, your lender may charge a number of fees including application, appraisal, origination and insurance fees, plus title search, insurance and legal costs that can add up to thousands of pounds. Lenders may also charge discount points, which are paid upfront to secure a lower interest rate. As a guideline, expect fees to eat up any potential savings unless your new interest rate is at least a half a percentage point lower than your current one.
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Mortgage Problems and the Myth of Foreclosure Help
For a number of reasons, the rate of home foreclosures is rising in the United States. In fact, the rate is up some 70% over a year ago. Part of this is due to rising interest rates that are making payments unaffordable to homeowners who bought their homes three or four years ago with adjustable rate mortgages. Many of these mortgages were set to adjust after three years, and the resulting increases in payments have left the homes unaffordable for their owners. With little recourse, thousands of owners have had to walk away from their homes. This unfortunate situation may be avoidable in some cases, particularly if the owners discuss their troubles with their lenders. Instead, many owners have answered ads posted by companies offering “foreclosure help”, hoping to find a way to keep their houses despite their financial troubles. In many cases, the owners not only fail to get the help they need, but they often end up literally giving their houses away to the companies they thought would help them keep them.
The scam is a common one that takes advantage of people in desperate situations. Mortgage companies that intend to foreclose on delinquent customers file notice with the counties in which the homeowner resides. The county posts those notices and investors make note of the addresses. With a bit of research, they determine the value of the property and the amount owed on the mortgage. The investors seek properties with large amounts of equity. They then approach the owner with an offer to “help” them with their financial troubles. The offers vary, but the deal usually involves an offer to make good on the delinquent amounts while renting the home back to the owner for a set period of time. At the conclusion of that time period, the investors say they will offer the owner-turned-tenant the opportunity to repay and take their home back. For desperate homeowners who want to keep their houses, these offers seem like a Godsend.
Unfortunately, the deals rarely work out to the benefit of the owner. More often than not the paperwork provided with the offer includes a quitclaim deed, which, once signed by the owner, essentially gives the property to the investor. The investor, now the owner of the property, then demands an unreasonable amount of rent from the owner-turned-tenant. When he or she cannot pay, the investor evicts the tenant and sells the house, pocketing the profits. In some cases, investors have pocketed several hundred thousand pounds from a single property, all for the minimum investment of a few months’ of delinquent mortgage payments. The former owner is left with nothing.
Some states, such as Minnesota, have passed laws that severely restrict this practice, but others, such as Florida, have so far been unable to overcome large opposition from business interests. In the states with few restrictions, flyers offering foreclosure help can be found on telephone poles in just about every city. Unfortunately for homeowners who have financial trouble, the last thing they will receive if they respond to these flyers is help. Homeowners who are in financial trouble should call their lender first. The last thing lenders want to do is foreclose, so buyers would be better off calling their lender rather than trusting their home to a stranger who advertises on telephone poles.