boots asked:


I want to know if the law provides for a way to erase credit card debt legally, and if there is a legal way to erase a home mortgage.

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Julian Lim asked:


 

When looking at home mortgage refinancing, rates and terms of the loan are critical.  The rate is the amount of interest that you will be applied to the unpaid principal during each loan payment period, while the term is the length of time before the loan is paid off.  It is important to understand how various combinations of these two factors affect the total cost of your loan. Make certain that you have a complete understanding of not only the monthly payment that will be your obligation, but the cost of the entire loan over the course of the loan. 

 

Definitions

 

There are some common buzz words associated with obtaining home refinancing.  It is important that you understand the meaning of the terms as the loan broker or the lender defines them.  If the definition is not standard usage as you understand the term, you may find yourself with some very wrong assumptions about the mortgage documents that you signed. For example, you should at a minimum define adjustable rate mortgage, mortgage term, Option ARM and negative amortization.  Be aware of alternative terms used in the documents and be certain that you understand the impact these words and clauses will have on the length and cost of the mortgage loan.

 

ARM

 

An adjustable rate mortgage grew in popularity during the 70s and 80s when fixed rate mortgages were climbing sky high.  The adjustable rate mortgage allowed more home buyers to qualify for a loan, because the interest rate and thus the initial payment amount was lower. If you select the ARM for your home mortgage refinancing, you will typically pay less for 6 to 24 months after which your rate will increase at a rate tied to some outside index. There may or may not be a cap on how high the adjusted rate can go and how often it can be adjusted.

 

Fixed Rate

 

A fixed rate is quite common when searching for home mortgage refinancing.  This type of rate benefits those who have a stable income, plan to stay in the same home for at least 3 years, and who need to be able to plan ahead for expenses in the foreseeable future. The fixed mortgage rate is set at the onset of the loan term and does not change during the term.  It tends to be somewhat higher than an adjustable rate mortgage since the lender has a slightly higher risk of loss with this type of loan.

 

Negative Equity

 

Negative equity loans are more likely to be seen in new home mortgages than in home mortgage refinancing loans, since the concept is relatively new. Essentially, the negative amortization loan adds the unmet portion of interest and principal payments each month to the principal balance.  This means that at the end of the grace period which can be only a few months, the borrower ends up owing more in principal than was on the original loan.  A few individuals can take advantage of this type of loan but it requires self-discipline and an understanding of strict budgeting.

 



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Julian Lim asked:


To avoid nasty and expensive surprises on your home mortgage refinance loan, review these tips and hints about the loan as well as home mortgage rates you are considering. They can save you money.

The cost of your home mortgage refinance package is typically made up of a number of components and the decisions made regarding these factors will affect the cost of the loan both at closing time and during the lifetime of the loan. The final cost of any loan is driven by the home mortgage rates, either fixed or adjusted over the course of time, by the closing costs as well as loan fees applied to the loan and by the length of time before the loan is paid off in full. Each of these factors can have a significant impact on the amount you pay for the use of the money to purchase your home.

Fixed or Adjustable?

A fixed rate for your home mortgage refinance means that the interest rate is set at the time of the loan closing and doesn’t vary due to rising or falling market conditions, economic aspects or other factors which are out of your control. An adjustable rate mortgage (ARM) on the other hand can change, particularly in instances where the interest rates are rising steadily or even drastically during a relatively short period of time. However, the ARM does have the advantage of costing less during the initial payment periods which can range from six months to two years.

Closing costs

Closing costs accrued during a home mortgage refinance can be displayed in a higher or lower interest rate and can be added to the principal to be repaid on the loan or can be required to be paid in cash at closing. Typical costs that are associated with closing are prepaid interest points, loan document fees, loan origination fees, title search, property inspection and property appraisals. Whether these are paid directly, or are rolled into the cost of the loan, they must be paid and must be considered as a cost of money.

Option ARM

An option ARM is a fairly new type of refinancing on the market and is more common with new home loans than with refinances. Choosing this type of mortgage loan, means that you are beginning the loan with payments that are less than the necessary cost to cover the home mortgage rates interest and principal costs. The difference between the payment amount and the total cost of the monthly payment is simply added to the principal balance and interest is charged against the revised amount. For a person with a flexible income this can be a great choice, but it requires self discipline to make additional payments when the income level is higher.

Loan term

Another component that is important in determining the final cost for the home mortgage refinance is that of the loan term. This is effectively the length of time before the mortgage is complete paid off. Obviously, the longer it takes to pay off the principal, the more interest will be charged and vice versa. At the same time, a longer loan term means that the payments on a monthly basis will be lower because a smaller proportion is going toward the principal.



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Ben Horne asked:


There are three major types of home mortgages - fixed-rate mortgages, adjustable rate mortgages and alternative or combination mortgages. Each of these has its benefits and disadvantages along with different types of lending and interest setups within each major type. To learn more about the pros and cons of the different types of home mortgages, keep reading.

Fixed Rate Mortgage

A fixed rate mortgage is your standard, typical, mortgage. Its main advantage is that your housing costs are predictable - you know how much you can expect to pay every month, when your mortgage will be paid off and exactly how much it will cost you in interest payments.

Typically, a fixed rate mortgage comes in a 30-year term. However, homeowners who are refinancing their homes have increasingly been tapping into shorter 15-year terms, while first time home buyers sometimes consider terms as long as 40 years in order to pay less on their monthly debt.

Another popular type of fixed-rate mortgage is the bi-weekly mortgage. Because making your mortgage payments on a bi-weekly basis allows you to make two extra mortgage payments every year (therefore the equivalent of 13 monthly payments instead of the normal 12) , you can pay down your mortgage faster and save tens of thousands of dollars on interest alone.

The major disadvantage of a fixed rate mortgage is that if you get your loan when interest rates are high, you’re locked in at that rate. So, if interest rates fall, you lose out on that potential interest savings and would then need to walk through the steps of refinancing the loan to get a lower rate.

Adjustable Rate Mortgage

Adjustable rate mortgages become very popular when interest rates are high. Typically, lenders offer a low, introductory interest rate followed by an interest rate that’s based on the market average, or slightly above the prime rate. In this scenario, as interest rates rise and fall, so do your mortgage payments.

Bear in mind, though, that the key risk with an adjustable rate mortgage is if the general real estate market rate rises, one’s monthly mortgage payment (on the interest) will rise as well.

If you’re part of a family that expects its income to rise over the years, are only planning to own your home for a short period of time, anticipate stable mortgage interest rates in the foreseeable future, or simply want to get into the housing market but the interest rates are simply too high to lock in with a fixed rate mortgage, than an adjustable rate mortgage is for you.

Combination Mortgages

It is possible to obtain mortgages that change their type as they mature. For example, the Super Seven or Two-Step mortgage gives homeowners a low, predictable interest rate for the first seven or ten years of their mortgage. At that point, their interest is reevaluated based on current market conditions.

The benefit? A lower interest rate to start, particularly if you plan to sell the home within 7 years. The drawback? Depending on rates, your interest rate could jump as high as 6 or 7 percent by the end of your term.

The type of mortgage you ultimately select for the purchase of a home is a weighty decision that must factor in a number of risks and personal circumstances. Before jumping into the excitement of new home - especially for first time buyers - you should talk over options with your spouse, other family members, and those who have some expertise in matters of finance and real estate.



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