Mortgage Refinance Guide

If you are considering using an interest only mortgage to finance your home, there are several things you need to know before applying for this loan. Interest only mortgages can be an excellent solution to a short-term financial need; however, if these loans are used incorrectly there is a significant amount of risk that could cost your home and your financial well-being.

Interest Only Basics

Interest only mortgages are simply a mortgage loan where the payments are only the amount of interest due that month. There is no principal included in your monthly payment amount; the result is a much lower monthly payment. These loans are not interest only forever; the principal balance will come due at a time specified in your loan contract. Interest only mortgages provide a period of time where the borrower can make lower payments. After this period is over the borrower will need to refinance or begin paying a higher amount that includes loan principal. This period of time usually lasts for five years.

Interest only mortgages are intended as short term method of financing your home. This is ideal for the real estate investor or homeowner that requires a low monthly payment for a period of time. These mortgages are often abused by homeowners that use them to purchase more home than they would qualify for with traditional mortgage financing. The danger in purchasing more home than you can afford with an interest only mortgage is that you may not qualify for refinancing later down the road when the loan principal is due. If you cannot make your payments you will lose your home.

The advantage of an interest only mortgage is the lower repayment amount. Because the monthly payment is only interest and none of the loan principal, you can save yourself a lot of money each month; your payment amount could be as much as $200 less each month. The other problem is that if you keep an interest only mortgage for a long period of time you can seriously overpay for your home.

Interest only mortgages are an excellent short-term financial tool; however, they need to be used responsibly. If you are a homeowner that moves from one property to the next frequently, interest only mortgages could save you money. To learn more about your mortgage financing options and how to avoid making common mistakes, register for our free mortgage guidebook: “Mortgage Loans – What You Need to Know.”

If you are looking for a practical method to eliminate your high interest debts such as credit cards and student loans, a home equity line could be the solution you are looking for. Debt consolidation using the equity in your home is a fast and easy way of eliminating high interest debt and saving money. Here is what you need to know about home equity loans.

Many homeowners have seen astonishing appreciation in the value of their homes over the past several years. This appreciation results in the appraised value of your home going up from when you purchased the home. Your equity is the difference between the balance owed on your mortgage and the appraised value of your home. For example, if your home appraised at $150,000 and you owe $50,000 on your mortgage, the equity you have in your home is $100,000.

When you take out a home equity loan you are borrowing against this value in your home. A home equity loan is a 2nd mortgage secured by your home; if you default on this loan the lender can foreclose and sell your home to repay the debt.

Consolidating Debt with Home Equity

Using a home equity loan to consolidate high interest debts can be the first step to becoming debt-free. Consumer debts such as credit cards, student loans, and car loans carry high interest rates and other fees. When you consolidate this debt with a home equity loan you will only have to make one payment each month.

Consolidating debt does not eliminate debt; it simply makes it easier to pay and reduces interest paid on the loan; this allows you to pay off your debts faster.

Advantages and Disadvantages

The advantage of consolidating your high interest debt with a home equity loan is that you can pay off the balances and close the accounts right away. Using home equity can reduce your outgoing cash flow by as much as 40 percent each month. The downside of using a home equity loan is the fact that this loan is secured by your home; falling behind on the payments could have disastrous consequences. To learn more about home equity loans register for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

If you are considering a home equity loan there are definite advantages to taking out a second mortgage over a home equity line of credit. The advantages and disadvantages of home equity loans depend on your individual circumstances. Here is what you need to know to make an informed decision regarding your home equity loan.

Rising Interest Rates
Rising interest rates are one of the disadvantages of a home equity loan. The Federal Reserve has made a habit of raising short term interest rates to try and stem inflation. The problem with these increases is that mortgage interest rates rise with them. If you have a home equity loan with a variable interest rate you could see significant increases in your monthly payment amount because of these increases. Second mortgages come with fixed interest rates; your monthly payment amount will remain fixed and is not susceptible to interest rate hikes by the government.

Avoid Overspending

A second mortgage loan is paid in one lump sum. Home equity loans allow you to use a debit card or write checks against your equity. This ease of access to your equity might tempt you to overspend and spend money you would not otherwise spend. Taking out a second mortgage will allow you to take out a specific amount for a specific purpose and plan repayment over a period of time.

Fixed Repayment Amounts

Taking out a second mortgage will allow you to plan repayment of the loan. You will be able to choose a term length that allows a payment suitable for your budget. Because this loan comes with a fixed interest rate you can count on the payment amount remaining the same for the duration of the loan. To learn more about your home equity options, register for our free mortgage guidebook: “Mortgage Refinancing- What You Need to Know.”

If you have a bankruptcy on your record, qualifying for a mortgage can be a difficult task. There are a number of simple steps you can take after your bankruptcy to ensure you qualify for a good mortgage in as little as two years. Here is what you need to know to rebuild your credit and qualify for a good mortgage.

Clean Up Your Credit

As soon as your bankruptcy is complete start rebuilding your credit. Apply for a credit card and make all of your monthly payments on time. It is important to carry low balances on all of your credit cards. You will want to maintain a low debt-to-income ratio while making all payments on time.

Open a savings account and start saving money every month. Consider holding a garage sale to put cash in the bank. Any money you are able to put away before applying for a mortgage will help your application.

Time Heals Everything

The longer you wait after a bankruptcy to qualify for a mortgage the better. If you wait two years after your bankruptcy is complete you will qualify for better rates; however, it is possible to qualify for a mortgage six months after your bankruptcy. It is important to rebuild your credit during this period. You cannot afford late payments or high balances on your credit cards. These things will hurt your credit and cost you money when you get a mortgage.

Do Your Homework

In order to qualify for the best mortgage loan you need to do your homework and research mortgage lenders. It is important to do your homework before applying for a mortgage in order to avoid making common mortgage mistakes. These mistakes can cost you thousands of dollars.

Predatory mortgage lenders target homeowners with poor credit with their scams; by researching mortgage lenders you will be able to recognize lenders that take advantage and avoid their scams. To learn more about qualifying for the best mortgage after a bankruptcy, register for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.” Chicago Mortgage Refinance

Refinancing your home mortgage can save you thousands of dollars. With low interest rates and an ultra-competitive market there are excellent deals available. There are a number of mistakes that could rob you of any potential savings from refinancing. You need to do your homework and shop from a variety of mortgage lenders and brokers to avoid making these mistakes. Here are tips to help you find the best mortgage.

Compare a Variety of Mortgage Lenders and Brokers

Many homeowners neglect to comparison shop when applying for a mortgage; this can be a costly mistake. You need to compare a variety of lenders and brokers so you will know what fair rates, fees, and closing costs are. If you find a mortgage lender offering rates that do not make sense compared to other lenders, consider it a warning that the mortgage offer could be fraudulent.

When refinancing your mortgage consider your current mortgage lender as an option. If you have a good payment history with this lender they may be willing to refinance your mortgage with better terms and rates. Keep in mind that refinancing your mortgage is going to cost you money; closing costs are typically paid as an out-of-pocket expense. By staying with your current lender you may be able to avoid these closing costs and lender fees.

You should obtain quotes from at least four different mortgage lenders when shopping for a loan. Make sure you are requesting “no obligation quotes” when shopping for a mortgage. This will allow the lender to quote you an offer without accessing your credit.

To learn more about saving money and finding the best mortgage, register for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage.”