Getting a mortgage can be a very confusing process. There is a lot of paperwork to sign, documents to read and procedures to be followed. You’d think you were applying to go to Harvard or Yale, except they don’t require that much paperwork for you to be admitted!
Going into a mortgage knowing just a few facts will help you immensely in understanding what type of commitment you are getting into.
The first term you should understand is, amazingly, the word “term”. Term refers to the length of the mortgage you are taking out – or the amount of time you are making payments.
Many mortgages run the gauntlet of between ten and thirty years. The longer the mortgage, typically the lower your monthly payment will be (and the more interest the mortgage company makes). Generally speaking, you should go for the shortest term you can comfortable afford – you’ll save potentially tens of thousands (and in some cases potentially over a hundred thousand) dollars in interest by keeping the length of the mortgage as short as you can.
Next, understand the interest rate on your mortgage and how it is calculated. The interest rate refers to the amount of interest charges you will pay for the money you are borrowing, expressed as a decimal – such as 5.2 for 5.2%. Is it fixed or adjustable? In other words, is it the same through the life of the loan or does it change at specified periods in time? Most home buyers should try and steer clear of adjustable rate mortgages even though they can look better up front. They can often reset to higher interest rates and come back to bite you if you aren’t ready for a jump in your monthly payments!
Finally, understand what closing costs are and how they are going to affect your purchase price. Often times, you are going to be responsible for coming up with these closing costs out of your own pocket. Closing costs consists of things such as appraisals done on the house, attorney fees, notary fee, deed fee – if there is a fee they can think of it usually falls under the term closing costs! Be a smart and savvy consumer, if you see a fee that you don’t understand or doesn’t seem right – speak up! Some mortgage lenders try to sneak in any fee they can think of to make a few extra dollars profit.
Understanding these three terms can help make you a more informed home buyer and help you find the mortgage that is right for you. As with any product, it is important to shop around for a mortgage when you are considering buying a house. Even a small change in the interest rate between two lenders can often to amount to thousands of dollars in savings.
Don’t be afraid to comparison shop – it’s your money after all!
Bond markets fell today but were able to close near unchanged after a slightly better than expected report on GDP and after a 5.6% rise in Existing Home Sales for November. Our benchmark 4% coupon fell 3bp to end at 99.0. Stocks posted modest gains on the data with the Dow up 26.33 to 11,559.48, the S&P 500 rose 4.24 to 1,258.84 while the Nasdaq rose 3.87 to 2,671.48. Tomorrow’s economic data includes Personal Income & Spending, Core PCE inflation gauge, Durable orders, Initial Claims, New Home Sales and Consumer Sentiment. The Treasury will announce the size offerings for next week’s 2, 5 and 7 year notes. The Bond markets will close early tomorrow at 2:00pm ET
A home equity loan is a form of credit for which your home is pledged as collateral. Generally, home equity loans offer a fixed interest rate and a fixed monthly payment. A standard home equity loan (also called a second mortgage) is paid off over an extended period of time.
You can estimate your homes equity. The difference between the value of a property and any outstanding mortgage balance(s) or liens against it. Also referred to as owner’s interest by adding the balance of all the debts secured by your home, then subtracting the total from your home’s value.
What are the primary advantages of a home equity loan?
The two major advantages of borrowing with a home equity loan are lower interest rates and potential tax savings:
The interest rate you will pay on the average home equity loan is generally lower than the interest rate you will pay on the average credit card or any other type of non-secured debt.
For home equity loans, you can generally deduct the interest you pay. The interest you pay on credit cards and other types of personal loans is generally not tax-deductible. Consult your tax pro about deducting your interest.
Are there hidden fees? Can I make additional principal payments in order to pay off my loan early?
Yes. You may make additional principal payments. Include the additional amount with your regular monthly payment to have the additional payment applied to your account. If you wish to pay your loan in full, check your loan terms to determine if a prepayment fee will apply. Most home equity loans include a fee, which is charged upon full prepayment. If this prepayment fee applies to your loan, it will be disclosed in your final loan documents.
Your Maine Mortgage Specialist can advise you on all of your Equity Line options available within your Maine Home.
Here is a simple chart outlining Maine’s FHA Loan Limits.
|LEWISTON-AUBURN, ME (MSA)||ANDROSCOGGIN||$271,050||$347,000||$419,425|
|PORTLAND-SOUTH PORTLAND-BIDDEFORD, ME (MSA)||CUMBERLAND||$337,500||$432,050||$522,250|
|AUGUSTA-WATERVILLE, ME (MICRO)||KENNEBEC||$271,050||$347,000||$419,425|
|ROCKLAND, ME (MICRO)||KNOX||$279,450||$357,750||$432,400|
|BANGOR, ME (MSA)||PENOBSCOT||$271,050||$347,000||$419,425|
|PORTLAND-SOUTH PORTLAND-BIDDEFORD, ME (MSA)||SAGADAHOC||$337,500||$432,050||$522,250|
|PORTLAND-SOUTH PORTLAND-BIDDEFORD, ME (MSA)||YORK||$337,500||$432,050||$522,250|
Borrowing Against Your Home has Its Benefits
With fuel, food and home prices fluctuating, families are finding that a home equity loan can provide much needed financial relief to unexpected debt and large family expenses. Because an individual’s home is, most likely, their largest asset, homeowners are using the equity in their home to fund a variety of items like medical bills, education and even their escalating living expenses. Take a closer look at the basics and the benefits of tackling current and anticipated debt by borrowing against your home.
Before you begin the home equity loan application process with a Mortgage Specialist it is imperative to know the two types of home equity loans: fixed rate and lines of credit. Both loan types are offered with loan terms that generally range anywhere from 5 to 15 years and require the borrower to repay the loan in full if the home against which they are borrowed is sold.
Though there are borrowing and term similarities, each loan has its differences. A home equity loan (also known as a second mortgage) is a fixed amount that you borrow to be paid off over a certain number of months, while the home equity line of credit (HELOC) is a variable rate. Much like a credit card, a HELOC pre-approves you, the borrower, for a certain spending limit of which you may withdraw using special HELOC credit cards or checks. Call your banker/broker to determine which loan type (fixed rate or line of credit) best fits your needs and to discuss some of the home equity loan benefits listed below.
Benefits of Borrowing Against Your Home:
More Money for Your Effort
As you may know, loan applications are quite a hassle and often don”t provide enough monetary resources to fund large purchases like remodeling your home or sending the kids off to college. Home equity loans only require one application and can provide borrowers with an easy source of large amounts of cash.
Low Interest Rate
The home equity loan interest rate is much lower than credit cards and other consumer loan rates, which is one of the reasons why so many homeowners use their home equity loan or line of credit to pay off their credit card balances. Using a home equity loan as a debt consolidation tool is a viable option for many homeowners, yet it is important that the borrower is committed to limiting any future credit card use.
With a home equity loan, you, the homeowner, can borrow a large sum of cash for any purpose you like and still deduct up to $100,000 of the interest when filing your tax returns. Typically the $100,000 can be increased for any borrowing used to improve your home, such as a kitchen or bathroom remodel. For example, a borrower may spend a total of $100,000 on hospital expenses and college tuition and $10,000 on a new roof, the interest on the entire $110,000 would be deductible as home mortgage interest.
Borrowing against your home has many benefits and can be tempting to use in order to splurge on expensive luxuries. To avoid the perpetual cycle of spending and borrowing, work with your mortgage professional and conduct a careful review of your financial situation before you apply for a home equity loan or line of credit. Your mortgage expert will not only make sure you understand the terms of the loan but also check to ensure you have the means to make the payments without compromising other bills.
I normally hate titles that are meant to scare people into reading but unfortunately this time there is no exaggeration to the severity of the issue. USDA Guaranteed Rural Development loans, one of the best low/no down payment financing programs left, has recently announced they expect to be out of the funds they use to guarantee loans by late April. If no action is taken by Congress to re-appropriate more funds then it will be the next budget year, after October, before we have this financing option again.
But the Tax Credit deadline is looming
Exactly- This funding shortfall couldn’t happen at a worse time. Now as contacts are being negotiated, applications are being taken and plans are being made to ensure buyers meet the dates of the tax credit deadline, we throw a wrench in the system. Should a buyer proceed with USDA financing if they have just received a fully executed contract? Should a buyer that has been pre – qualified for a Rural Development loan continue house shopping? What can this mean to a buyer that is already in the process too far to turn back?
These questions must all be dealt with on a case by case basis, depending on a variety of factors. One of the most important factors to consider is current and anticipated turn times for your local USDA underwriting. Here in Maine USDA is at 7-10 business days so unless you can have your loan ready to go to the USDA by April 9th, there is a good possibility you may not make the funding cutoff. This is further complicated by the fact that USDA is the only loan program that does not require HVCC type appraisal restrictions (VA is a different animal but with the same results). This means if you commit to USDA financing now and are forced to revert to FHA or another program, you may need a new appraisal.
Buyers should follow the advice of their trusted lenders and know that proceeding with a USDA loan without enough time to make this cutoff is a gamble. We truly need an act of Congress to approve additional funds for these loans. Although it seems logical that they should want to avoid such a deep blow to the housing industry at this time, we all know oftentimes there is precious little logic in D.C. If you think I’m exaggerating the seriousness of this, do know the USDA Guaranteed RD program assisted 2,125 families in home ownership in Maine alone! Sure, some may be able to qualify through another program like FHA or VA but many won’t.
Is there anything we can do to help?
Yes- please accept this call to action to contact your trade associations and express the severity of this. NAR, NAMB and the NAHB have all been made aware of this and I trust are beginning lobbying efforts to rectify it. You could also contact your members of elected officials in the House and Senator Susan Collins in the Senate and urge them to sponsor legislation and fast track it to minimize the damage a funding delay could cause. This is not a partisan issue, both sides of the aisle should be eager to approve this. This isn’t about bailing out the housing industry, it’s about maintaining funding for a loan program that has suddenly become much more popular than anyone expected due to the current environment of real estate.