Mortgage refinancing is when a homeowner gets a new home loan to pay off their existing one. The benefits of doing this are that they may be able to save money by getting lower interest rates or special deals. Refinancing is not the best option for everyone, though. For a person who is facing financial problems refinancing could spell trouble.
It is common for a person to want to save money on their home loan. A home is most likely the biggest purchase a person will ever make, but that does not mean they have to stick with one lender and pay the same high interest rates forever. Home owners have the option of refinancing to cut their home buying costs. Refinancing involves shopping around for a better deal then the one they currently have.
When shopping around it is advisable to approach a few good mortgage brokers that work with a large panel of lenders, not just one or two. This way they can search the market place to find the right deal for you. This is even more advisable if you have a bad credit history.
A good broker will have access to a number of specialist adverse or sub prime lenders who will be able to offer you competitive rates. The same is true if you are self employed and have trouble proving your income.
Many times when a person is facing financial problems they see using their home as a way to clear their debts. While that is an option, refinancing to get out of financial problems is not a good idea. One reason is that should the person be unable to make the new loan payment, then their house is now in jeopardy.
Unless a person is truly sure that refinancing their home to get money to pay off debts is something they can afford and will truly solve their problems, then it is not a wise decision.
Some people refinance to change from a variable interest rate to a fixed interest rate. This can be very beneficial. Fixed rates mean that the mortgage payment never changes and is the same form month to month.
With a variable rate the amount of the mortgage can change drastically form month to month as the interest rates fluctuate. However, with a fixed rate a person has to be careful not to lock in on too high of a rate. They would then lose out when interest rates go down, unless they go through mortgage refinance again.
There are also many lenders out there who are not what they say to be. Mortgage refinance scams are common and can really be damaging. To avoid scams a person should always deal with a trusted lender and read every piece of paperwork completely. If a deal does not seem right then it is best to back out before ever signing anything.
Mortgage refinance can be a very good thing if done carefully. There are also many ways in which it can go wrong. Homeowners need to be aware of everything involved in mortgage refinance so they can get the best possible deal that will save them the most money.
They should also always be aware that they are risking their home should they not carrying through with their mortgage obligations. It is important to make sure everything is in place and understood before ever signing the papers.
About the Author:
James Copper has been in the financial services industry for many years. He is currently a Cheap Remortgage Expert for Remortgage-Here, who specialise finding in the Best Remortgage deals available.
Friday, April 20, 2007
Investing: Are New Mortgages Right For You?
Financial salespeople such as investment advisors and mortgage brokers are recommending ‘new’ types of mortgages for improving cash-flow, freeing up money to invest, and having money to take that dream vacation.
Their sales pitches sound so enticing. But here’s what they don’t tell you.
In the past, the only decision to make when getting a mortgage was whether you wanted a fixed or adjustable rate. Now, seniors are being pitched interest-only mortgages, option-ARMs and reverse mortgages. It’s easy to become confused and overwhelmed. The result is you can spend thousands of dollars in fees and end up with a mortgage that doesn’t meet your needs.
In a traditional mortgage, part of each monthly payment covers interest while the rest goes to pay down the principle amount you borrowed. With each payment you are decreasing the amount you owe and increasing your equity.
Interest-only, option-ARMs and reverse mortgages function quite differently from the traditional mortgage. Instead of decreasing the amount you owe, you will most likely be maintaining the same level of debt. In some cases you will actually be increasing the amount you owe—you will be going further into debt with each payment you make!
With an interest-only mortgage, you pay the amount of interest due each month for the first 10 years. This is still a 30-year mortgage, but you don’t begin paying down principle until year 11. Since there isn’t any money going to principle, your monthly payments will be less than with a traditional mortgage only during those first 10 years.
This can make sense in certain situations—especially for cash-strapped seniors. Since the monthly payment is lower, it will reduce what you take out of your retirement account. That means you won’t have to pay income tax on that retirement money. It can continue to grow tax-deferred.
I only recommend this strategy as long as there remains at least 25% home-equity. Also, it’s not a good idea to tap into equity during the refinancing to buy a new car or take a fancy vacation. This isn’t free money. Spending the equity in your home is no different than spending the money you’ve invested in a CD or mutual fund.
The option-ARM is being heavily promoted these days—but watch out! They’re sold based on their low introductory interest rate (as low as 1%) and a special low payment. And they give you the ‘option’ of the kind of payment you make each month. You can make the special low payment, you can pay the interest-only, or you can pay principle and interest just like a traditional mortgage.
On the surface this sounds good, allowing seniors to increase cash flow or to free-up their home equity so they can invest it in other, ‘better’ investments such as equity-indexed annuities.
But don’t do it. People buying this mortgage think they are getting a great deal because of the low interest rate and the low payment. What they don’t realize (and what isn’t properly explained to them) is that each time they make that special low payment they are going further into debt.
Think about it. Let’s say you borrow $200,000 and the interest-only payment is $1000 per month. If you instead make a payment of $400 then the $600 in interest you didn’t pay is added to what you owe. So next month the interest due is based on owing $200,600. Do this for a year and you have dramatically increased what you owe. Instead of saving money like you thought, you were actually spending the equity in your home on other things.
The low introductory rate only lasts a short time, often just a few months. After that, you can end up paying a higher interest rate than if you went with a traditional mortgage in the first place. The costs of getting an option-ARM are higher as well. These only make sense in a few isolated situations. Most people should stay away from them.
Next week I’ll talk about the advantages and disadvantages of reverse mortgages. I will also share stories from my readers that illustrate the shady mortgage-related sales pitches that are now being used. Don’t buy one of these mortgages until then.
Have a financial question? Send me an email and I’ll personally respond, free of charge. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.
About Author
Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com .
Their sales pitches sound so enticing. But here’s what they don’t tell you.
In the past, the only decision to make when getting a mortgage was whether you wanted a fixed or adjustable rate. Now, seniors are being pitched interest-only mortgages, option-ARMs and reverse mortgages. It’s easy to become confused and overwhelmed. The result is you can spend thousands of dollars in fees and end up with a mortgage that doesn’t meet your needs.
In a traditional mortgage, part of each monthly payment covers interest while the rest goes to pay down the principle amount you borrowed. With each payment you are decreasing the amount you owe and increasing your equity.
Interest-only, option-ARMs and reverse mortgages function quite differently from the traditional mortgage. Instead of decreasing the amount you owe, you will most likely be maintaining the same level of debt. In some cases you will actually be increasing the amount you owe—you will be going further into debt with each payment you make!
With an interest-only mortgage, you pay the amount of interest due each month for the first 10 years. This is still a 30-year mortgage, but you don’t begin paying down principle until year 11. Since there isn’t any money going to principle, your monthly payments will be less than with a traditional mortgage only during those first 10 years.
This can make sense in certain situations—especially for cash-strapped seniors. Since the monthly payment is lower, it will reduce what you take out of your retirement account. That means you won’t have to pay income tax on that retirement money. It can continue to grow tax-deferred.
I only recommend this strategy as long as there remains at least 25% home-equity. Also, it’s not a good idea to tap into equity during the refinancing to buy a new car or take a fancy vacation. This isn’t free money. Spending the equity in your home is no different than spending the money you’ve invested in a CD or mutual fund.
The option-ARM is being heavily promoted these days—but watch out! They’re sold based on their low introductory interest rate (as low as 1%) and a special low payment. And they give you the ‘option’ of the kind of payment you make each month. You can make the special low payment, you can pay the interest-only, or you can pay principle and interest just like a traditional mortgage.
On the surface this sounds good, allowing seniors to increase cash flow or to free-up their home equity so they can invest it in other, ‘better’ investments such as equity-indexed annuities.
But don’t do it. People buying this mortgage think they are getting a great deal because of the low interest rate and the low payment. What they don’t realize (and what isn’t properly explained to them) is that each time they make that special low payment they are going further into debt.
Think about it. Let’s say you borrow $200,000 and the interest-only payment is $1000 per month. If you instead make a payment of $400 then the $600 in interest you didn’t pay is added to what you owe. So next month the interest due is based on owing $200,600. Do this for a year and you have dramatically increased what you owe. Instead of saving money like you thought, you were actually spending the equity in your home on other things.
The low introductory rate only lasts a short time, often just a few months. After that, you can end up paying a higher interest rate than if you went with a traditional mortgage in the first place. The costs of getting an option-ARM are higher as well. These only make sense in a few isolated situations. Most people should stay away from them.
Next week I’ll talk about the advantages and disadvantages of reverse mortgages. I will also share stories from my readers that illustrate the shady mortgage-related sales pitches that are now being used. Don’t buy one of these mortgages until then.
Have a financial question? Send me an email and I’ll personally respond, free of charge. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.
About Author
Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com .
The Rise and Rise of the Property Market in the UK
The property market has not yet become another subject which could get outdated over a period of time. It is a booming industry attracting many investors into its frame. The rise and fall of the industry will have a cascading effect on the economy.
It may be surprising to know that only 10 per cent of the dwellings in the UK were owner-occupied at the start of the 20th century, while 89 per cent were privately rented. The Government’s ‘right-to-buy’ policy has triggered the growth rate of owner-occupation in the late 1980s and there has been a dramatic increase in the population owning their dwelling units.
In 1970s, over 400,000 houses were built per year. Though the phase of building the dwelling units dwindled by 1990 to an average of 190,000 houses per year, a conservative estimate reveals that in 2001, 69 per cent of the houses were owner-occupied, with the remainder being let privately or through local authorities and housing associations.
The Emerging Trend
The emerging IT phenomena such as eBay trading, and the growth in buy-to-let property have made the people to earn more even without any high start-up costs or superior education, which leads to a greater change in the property market. As a result the UK consumer economy gained much strength over recent years which are attributable to the price increase in the UK’s property market. So any catastrophe in the property market will certainly have greater impacts on the wider economy.
The trend in the market predicts that the English will have more property.
The surveys conducted by many organisations stand testimony to this view. One such is Wealth management arm of Barclays. It presented a report on property market according to which 8 million UK households will own more than $1 million (510,000 pounds) in property, land, savings and investments by 2016. Furthermore, the report says almost half of all the UK households (49 per cent) will hold aggregate wealth between $500,000 and $1million, with all annual household incomes set to increase on average by 67 per cent over the next ten years. It said there will be more than one million UK households with more than $3 million in assets mostly comprising of house property by 2016.
Unaffordable for First Time Buyers
The property market of the UK shows that it is unaffordable for the first time buyers to purchase property. Studies conducted by several forums and analysts of property market uniformly said that the number of first time buyers in the UK has fallen to its lowest point in the last 26 years.
Another study by Halifax reveals that the near 30-year low reduced the number of first time buyer mortgages by seven per cent to around one third over the course of 2006. Furthermore, the study also found that 90 per cent of towns and cities are now unaffordable for first time buyers, with the average property costing in excess of £150,000. The first time buyers will need to appoint a solicitor or property lawyer to deal with the conveyancing so as to undertake the legal formalities of the property transfer. The method of electronic conveyancing, contemplated in the Land Registration Act 2002 will bring greater transparency to chains of transactions, a major source of difficulty for people buying or selling a home, especially first timers. But the emerging companies are offering many services to the first time buyers to buy new properties in tie-up with the property promoters.
Rate of Interest Vs Affordability
The MPC (Monetary Policy Committee) is expected to raise interest rates and it will dent a heavy blow on the new buyers. As per Government’s statistics the number of houses being built has gone up to more than 181, 000 a year from just under 130,000 in 2001. Over the last 30 years, demand for new homes increased by 30%. Many experts opine that unless the government builds more affordable housing and raises the stamp duty threshold, many households will continue to struggle to access the housing market.
Ups and Downs in House Market
The prices of house have surged very slowly over nine years until 1996.
But it has almost trebled thereafter. The average house price that stood at £774 in 1936-45, has spiralled up to a whopping £111,061 during the decade ending 2005.
Uncertainty about the rates of interest and house prices has introduced an element of caution into the market. Yet the growing need of the people to own their dwelling units proves positive to the economic growth.
About Author
James Walsh is a freelance writer and copy editor. For more information on choosing a Mortgage see http://www.which-mortgage.net
It may be surprising to know that only 10 per cent of the dwellings in the UK were owner-occupied at the start of the 20th century, while 89 per cent were privately rented. The Government’s ‘right-to-buy’ policy has triggered the growth rate of owner-occupation in the late 1980s and there has been a dramatic increase in the population owning their dwelling units.
In 1970s, over 400,000 houses were built per year. Though the phase of building the dwelling units dwindled by 1990 to an average of 190,000 houses per year, a conservative estimate reveals that in 2001, 69 per cent of the houses were owner-occupied, with the remainder being let privately or through local authorities and housing associations.
The Emerging Trend
The emerging IT phenomena such as eBay trading, and the growth in buy-to-let property have made the people to earn more even without any high start-up costs or superior education, which leads to a greater change in the property market. As a result the UK consumer economy gained much strength over recent years which are attributable to the price increase in the UK’s property market. So any catastrophe in the property market will certainly have greater impacts on the wider economy.
The trend in the market predicts that the English will have more property.
The surveys conducted by many organisations stand testimony to this view. One such is Wealth management arm of Barclays. It presented a report on property market according to which 8 million UK households will own more than $1 million (510,000 pounds) in property, land, savings and investments by 2016. Furthermore, the report says almost half of all the UK households (49 per cent) will hold aggregate wealth between $500,000 and $1million, with all annual household incomes set to increase on average by 67 per cent over the next ten years. It said there will be more than one million UK households with more than $3 million in assets mostly comprising of house property by 2016.
Unaffordable for First Time Buyers
The property market of the UK shows that it is unaffordable for the first time buyers to purchase property. Studies conducted by several forums and analysts of property market uniformly said that the number of first time buyers in the UK has fallen to its lowest point in the last 26 years.
Another study by Halifax reveals that the near 30-year low reduced the number of first time buyer mortgages by seven per cent to around one third over the course of 2006. Furthermore, the study also found that 90 per cent of towns and cities are now unaffordable for first time buyers, with the average property costing in excess of £150,000. The first time buyers will need to appoint a solicitor or property lawyer to deal with the conveyancing so as to undertake the legal formalities of the property transfer. The method of electronic conveyancing, contemplated in the Land Registration Act 2002 will bring greater transparency to chains of transactions, a major source of difficulty for people buying or selling a home, especially first timers. But the emerging companies are offering many services to the first time buyers to buy new properties in tie-up with the property promoters.
Rate of Interest Vs Affordability
The MPC (Monetary Policy Committee) is expected to raise interest rates and it will dent a heavy blow on the new buyers. As per Government’s statistics the number of houses being built has gone up to more than 181, 000 a year from just under 130,000 in 2001. Over the last 30 years, demand for new homes increased by 30%. Many experts opine that unless the government builds more affordable housing and raises the stamp duty threshold, many households will continue to struggle to access the housing market.
Ups and Downs in House Market
The prices of house have surged very slowly over nine years until 1996.
But it has almost trebled thereafter. The average house price that stood at £774 in 1936-45, has spiralled up to a whopping £111,061 during the decade ending 2005.
Uncertainty about the rates of interest and house prices has introduced an element of caution into the market. Yet the growing need of the people to own their dwelling units proves positive to the economic growth.
About Author
James Walsh is a freelance writer and copy editor. For more information on choosing a Mortgage see http://www.which-mortgage.net
Learn More about Refinancing
Get more about information on refinancing your mortgage and learn about everything from when you should refinance to how you can increase the value of your home. These educational articles will help you make the right decision about refinancing your mortgage and help you achieve your financial goals.
Read more about refinancing mortgages or additional articles about refinance topics from our selection below.
Refinance Tools
* Home Value Calculator
* Should you Refinance Calculator
* Free Refinance Guide
Talk to a Refinance Expert!
Most Popular Refinance Articles:
Interest-Only Refinancing
Learn all about interest-only refinancing and how you can use it to your advantage.
Refinance Questions & Answers
Refinancing your mortgage doesn't have to be a difficult or confusing process. Quicken Loans has the answers to commonly-asked refinance questions.
Reasons to Refinance
It's important to have a clear objective in mind when refinancing. Here are the most common reasons why homeowners refinance. Which one is right for your situation?
More About Refinancing:
How Market Conditions Affect Mortgage Rates
What does it mean for mortgage interest rates when the Federal Reserve drops rates?
Refinance Checklist
Refinancing with Quicken Loans is quick and easy. But even faster when you prepare in advance.
Cash-out Refinancing Versus Home Equity Loans
A home equity loan or line of credit and cash-out refinancing will both allow you to access your home's equity. Which one is best for you?
Learn How Option ARM Mortgages Work
Option ARMs give you great payment flexibility when you need it. Learn more about the four different payment options and whether an option ARM is the right mortgage for your situation.
How To Determine A Home's Value
Do you know the difference between an appraisal and a comparative market analysis? Find out, and see how you can use the Quicken Loans to find the value of your home.
Home Improvements That Pay Off
Using your home equity to make home improvements can be a smart move. Find out which improvements pay off and tip for avoiding home improvement pit falls.
Homeowner Tax Tips
Owning a home offers you several tax advantages, including deducting mortgage interest and interest on home equity loans.
Quicken Loans Refinance Guide
Our free Refinance Guide offers tips for consolidating debt and more. Download the Refinance Guide today and learn how to best manage one of your most important investments... your home!
Refinance Your Investment Property
When interest rates fall, refinancing the mortgage on your investment property becomes very attractive because refinancing offers ways to leverage the equity in your property, lower your monthly payments and increase your cash flow.
http://www.quickenloans.com/refinance/articles/index.html
Read more about refinancing mortgages or additional articles about refinance topics from our selection below.
Refinance Tools
* Home Value Calculator
* Should you Refinance Calculator
* Free Refinance Guide
Talk to a Refinance Expert!
Most Popular Refinance Articles:
Interest-Only Refinancing
Learn all about interest-only refinancing and how you can use it to your advantage.
Refinance Questions & Answers
Refinancing your mortgage doesn't have to be a difficult or confusing process. Quicken Loans has the answers to commonly-asked refinance questions.
Reasons to Refinance
It's important to have a clear objective in mind when refinancing. Here are the most common reasons why homeowners refinance. Which one is right for your situation?
More About Refinancing:
How Market Conditions Affect Mortgage Rates
What does it mean for mortgage interest rates when the Federal Reserve drops rates?
Refinance Checklist
Refinancing with Quicken Loans is quick and easy. But even faster when you prepare in advance.
Cash-out Refinancing Versus Home Equity Loans
A home equity loan or line of credit and cash-out refinancing will both allow you to access your home's equity. Which one is best for you?
Learn How Option ARM Mortgages Work
Option ARMs give you great payment flexibility when you need it. Learn more about the four different payment options and whether an option ARM is the right mortgage for your situation.
How To Determine A Home's Value
Do you know the difference between an appraisal and a comparative market analysis? Find out, and see how you can use the Quicken Loans to find the value of your home.
Home Improvements That Pay Off
Using your home equity to make home improvements can be a smart move. Find out which improvements pay off and tip for avoiding home improvement pit falls.
Homeowner Tax Tips
Owning a home offers you several tax advantages, including deducting mortgage interest and interest on home equity loans.
Quicken Loans Refinance Guide
Our free Refinance Guide offers tips for consolidating debt and more. Download the Refinance Guide today and learn how to best manage one of your most important investments... your home!
Refinance Your Investment Property
When interest rates fall, refinancing the mortgage on your investment property becomes very attractive because refinancing offers ways to leverage the equity in your property, lower your monthly payments and increase your cash flow.
http://www.quickenloans.com/refinance/articles/index.html
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