Is the 30-Year Fixed Mortgage Actually a Lot of Work?

I typically refer to the 30-year fixed mortgage as a set-it-and-forget-it type of mortgage because it’s fixed for the entire duration of the loan.

The mortgage rate in month one is the same as the rate in month 360. The mortgage payment never changes, though the total housing payment could vary thanks to things like taxes, insurance, and PMI.

Put simply, it’s a very easy mortgage to wrap your head around, and for that reason the most popular and common choice for homeowners here in the United States.

The same isn’t true elsewhere in the world, which is one of the reasons why the 30-year fixed has been questioned a lot lately by economists and mortgage pundits.


The latest opinion comes from Benjamin Keys of The Wharton School of the University of Pennsylvania, who analyzed how monetary policy makes its way into households via the mortgages borrowers hold.

During the most recent crisis, those with adjustable-rate mortgages actually “won” in a sense because their rates adjusted lower when the government stepped in and bought tons of mortgage-backed securities while lowering other borrowing rates.

Meanwhile, those with fixed rates didn’t benefit at all, and in fact were trapped in their mortgages because of equity issues, namely underwater mortgages.

This meant those who ostensibly took on more risk were rewarded when the wheels fell off. And those who were seemingly prudent in their mortgage choice were punished because they were unable to refinance until HARP came along.

Does that mean we should all go with ARMs instead of fixed-rate loans and hope the government takes care of the rest?

Is an ARM the Hands-Off Mortgage Solution?

Keys noted that there is an “automatic transmission of monetary policy through adjustable-rate mortgage contracts.”

In other words, the ARM adjusts with the greater economy and the borrower doesn’t have to go out and refinance or lift a finger.

Their lender will just adjust their payment as the index changes, whether it’s up or down. Of course, lately it’s been a one-sided argument, with ARMs generally falling at the reset, instead of climbing.

This has actually led to debt reduction and new spending, with borrowers who selected ARMs choosing to pay down higher-APR like credit cards while also purchasing new cars.

Effectively, the economy was stimulated via these ARMs because it freed up cash for households to inject back into the economy through other channels.

Mortgage defaults in this group also dropped by some 36% thanks to the reduced monthly payment.

To summarize, borrowers with ARMs didn’t need to do anything to obtain lower payments, despite the fact that most probably assumed they’d have to refinance out of the ARM once it adjusted (higher).

At the same time, their neighbors with fixed-rate mortgages set at 6% were probably shaking their heads, wondering how they wound up paying more.

Additionally, they had to keep a close eye on interest rates to ensure they weren’t paying too much, and then make the decision to refinance or not. That meant a lot of work (and worrying), ironically.

Interestingly, Wharton researchers found that regions of the country that had more ARMs recovered faster during the Great Recession, saw more auto sales, and increased local employment.

Could the Opposite Happen?

The problem is ARMs can move both up and down, and everyone (including Wharton) expects rates to go up the next time around.

The big question is how things will play out when that happens. Will the borrowers who elected to take out ARMs get burnt and require a bailout?

Will home prices go down more in the areas where ARMs were more popular?

If so, might the 30-year fixed prove to be the winner it was expected to be prior to the most recent housing crisis? And as such, should it be left alone?

All to be determined…but there’s a good takeaway here. Monetary policy can dictate whether ARMs adjust higher or lower, so in that sense the Fed has the ability to provide direct stimulus to homeowners, without tax rebates or mass refinancing programs. That’s a pretty powerful thing.

But if homeowners keep opting for the 30-year fixed, it’ll be difficult for the Fed to do a whole lot, and these homeowners might just find that their mortgages are a lot more work than they expected.

source: thetruthaboutmortgage.com

5 Ways to Pay off a Mortgage Loan Early

Although it can take up to 30 years to pay off a mortgage, there’s no rule that says you have to spread this debt over three decades.

An “estimated 20 million Americans own their homes outright,” reports Dave Ramsey, author of the best-selling book The Total Money Makeover. And if you’re looking to join this club sooner rather than later, adjusting the way you pay your mortgage can get rid of the loan quicker.

Now, this achievement may appear to be a far-off dream, but there are practical ways to make it happen.

1. Submit Bi-Weekly Mortgage Payments

Paying one-half of your mortgage payment every two weeks can shrink your term by six or seven years. Given how there are 52 weeks in a year, bi-weekly payments result in 26 half payments – the equivalent of 13 full payments or one extra mortgage payment a year.

Although a seemingly insignificant move, this extra mortgage payment decreases the amount of interest you owe over the life of the loan and ultimately shortens the length of your mortgage term.

Unfortunately, a bi-weekly schedule isn’t something you can do on your own. You’ll need to get permission from your lender to switch to a bi-weekly payment schedule, and most banks charge a one-time setup fee.

2. Make Higher Monthly Mortgage Payments 


A bi-weekly mortgage is an effortless way to pay down a mortgage faster, but not all banks offer this option. If your lender doesn’t allow this pay schedule, you can still pay off your mortgage early by sending one extra principal payment a year.

There are different approaches for submitting the extra payment. You can make a double mortgage payment once a year, and specify on the payment coupon that you want the extra amount credited to the principal only.

Another option is increasing each mortgage payment by 1/12, which might be more manageable than a double mortgage payment. Simply divide your regular payment by 12 months and then add this extra amount to each future payment.

For example, if you’re scheduled to pay $1,400 a month, increasing each payment by $117 results in one extra mortgage payment a year.

 3. Refinance Your Mortgage

If you’re only a few years into a 30-year mortgage term, refinancing to a 10 or 15-year mortgage is another strategy for paying off a home sooner. Shorter terms increase how much you pay on a monthly basis, but the increase may not be as high as you think.

Some people mistakenly assume that cutting a mortgage term in half will double their mortgage payments. However, shorter repayment periods typically justify a cheaper interest rate, and this lower rate can translate into surprising savings.

To illustrate: a $200,000 mortgage for 30 years with an interest rate of 4.25% comes to $983 a month, excluding taxes and insurance.

If you take the same mortgage and reduce the term to 15 years, you might qualify for an interest rate of 3.29%. Based on the second scenario, you’re looking at a mortgage payment of $1,409 – a difference of just $426 a month.

4. Reduce Your PMI

If you are homeowner who did not put down at least 20% as your down payment, you will have to pay what is called private mortgage insurance, or what is commonly referred to as PMI. PMI is added to your monthly mortgage payment until you get to 20% equity.

If you have to pay PMI, considering to make more than the monthly payment would be a good idea as the extra amount would go towards the principal, thus bringing the loan amount down and equity up quicker.

By doing this, you will pay off the PMI much faster than if you just made the minimum payment, which will save you money in the long run.

5. Switch to a Shorter Loan

Today, many homeowners have a 30-year fixed mortgage loan. One way to possibly help pay down your loan quicker is by switching to a 15-year mortgage.

If you can afford to make a higher payment, then this would be a great alternative as you would save years of interest compared to a 30-year loan.

One of the benefits of a 15-year fixed mortgage is that the interest rate is a noticeable amount lower than that of a 30-year fixed.

More often than not, if you are a homeowner who plans on paying off their mortgage early, it might be a good idea to consider a 15-year loan over a 30-year loan depending on your current financial situation.

Bottom Line

How you spend your disposable income is entirely up to you. And while you can probably think of a million other uses for the extra income, paying off your mortgage early has one undeniable, priceless benefit – peace of mind from knowing that you own the property free and clear.

source: totalmortgage.com

Your Mortgage vs. A Cash Offer: What You Can Do

Cash is king in most business transactions, and it’s no different with mortgages. A cash offer can be very tempting for a seller because there is no risk of the buyer defaulting on their payment.

However, all is not lost if you’re going the way of the mortgage. You’ll just want to follow the steps below to make sure your offer is as appealing as possible.


1. Get your lender to back you up

A pre-approval letter from your lender is a must. It will also help if you can get your lender or real estate agent to show the seller financial statements that clearly display you’re a qualified homebuyer.

2. Have an appraisal ready

You don’t want to make the seller wait for your loan to be approved. Talk to your lender and find out exactly how fast they can get an appraisal done on the property, and when the loan will be approved. With some banks and mortgage brokers, it’s even possible to have an appraisal pre-ordered and ready to go.

3. Get inspections done right away

You don’t want to make the seller wait for anything. So as with everything else, get your inspection done as soon as possible.

4. Make a higher offer

When people pay with cash, they usually expect a discount. This provides an opportunity for non-cash buyers to make a higher offer. Paying more isn’t ideal, but if it’s what you have to do to get your dream home, it could be worth it.

5. Put more cash down

If you have some extra cash, consider making a higher down-payment. Instead of getting a mortgage for 70-80% of the purchase price, you could drop the financing down to 60-70% and potentially make your offer more appealing.

6. Make it personal

It’s not uncommon to write a letter to the seller, explaining a little about yourself and why you would love to purchase their home. A seller almost always appreciates knowing more about their potential buyers, and if you can strike an emotional chord, your chances of closing the deal could increase.

Bottom line:
At the end of the day, being flush with cash isn’t what makes the difference; it’s convincing the seller that you are a sound candidate to purchase their home.

If you have your finances straightened out, get things done in a timely manner, and can make a personal connection with the seller, you could very well beat out a cash offer.

source: totalmortgage.com

How to Pay the Mortgage with a Credit Card for Free and Make Money Doing It

Back during the housing boom aka meltdown there were services that allowed homeowners to make their mortgage payments with a credit card.

These services charged fees for the convenience, and looking back, they were probably only offered because people couldn’t keep up with their mortgage payments.

Unsurprisingly, these services seemed to disappear as quickly as they surfaced, but there are still options to pay the mortgage with a credit card each month free of charge.

The difference today is that this method/idea is more about earning credit card points (or cash back) for paying your hefty mortgage payment, not so much about simply paying it.


Let me preface this by saying it makes no sense to pay your mortgage with a credit card if you can’t afford to pay it otherwise.

The only purpose of this method is to earn points and/or cash back as you would on other purchases made with a rewards credit card.

You Can Pay Your Mortgage with American Express Serve


Perhaps the easiest method I know of involves American Express Serve, which is referred to as a reloadable prepaid account.

In reality, it basically works like an online bank account in that you can transfer/load money to it and then pay everyday bills or make purchases with the associated prepaid card.

Let’s focus on that paying bills part. Your mortgage is a bill and it must be paid each month until maturity, just like other recurring bills.

But loan servicers don’t give homeowners the option to pay with a credit card (for good reason!) unlike most other bills.

The Serve method entails loading the account with a credit card, and then using the funds to pay your mortgage. I suppose you can use a debit card as well if it earns rewards.

The purpose of this is to get rewards on that large amount of money spent, so if the credit/debit card doesn’t earn rewards, there’s no point in doing this.

And you need to pay off your credit card in full each month to avoid any interest or fees to offset the benefit of doing it to begin with.

A couple warnings/issues with this method:

– You need to make sure your credit card issuer doesn’t charge fees to load Serve (American Express warns of this possibility on the website)
– The max you can load with a credit or debit card each month is $1,000 ($200 per day)
– The limit increases to $1,500 a month ($500 daily) if you get Serve with Softcard, formerly known as Isis Wallet
– You actually need to pay off the credit card charges to avoid interest/fees

As noted above, you can load your Serve account with a credit card, but even American Express warns that you could be charged fees by your card issuer for doing so.

I’ve used a Chase credit card and there was no fee or issue. It just showed up as a standard purchase.

But to avoid any mishaps, testing with a small amount or asking your credit card issuer to lower your cash advance limit to zero (or as low as possible) might be a good idea before giving it a whirl.

Once the necessary funds are in the Serve account, you’ll be able to see your available balance. Assuming it’s sufficient to cover your full mortgage payment, you simply select “Pay Bills” from the dropdown menu then add a payee.

While certain payees are already in Serve’s system, you’ll likely need to add your loan servicer manually, including their address and your loan number.

It should be the address where you would send a paper check because Serve is basically cutting a physical check on your behalf. It’s essentially a bill pay service. This is exactly why it works.

You’re not actually paying your mortgage with a credit card – rather, you’re funding an account with a credit card then sending those funds to your servicer via check, a much more accepted form of payment.

Once you save the payee information, you can make your mortgage payment via Serve each month. There’s even a memo section where you can write your loan number and any other details to ensure the payment is processed properly.

Note that payments can take several business days to process, so it’s not as quick as making a payment online. Fortunately, mortgage due dates are fairly flexible. But you’ll want to give yourself a cushion to avoid paying late if anything goes wrong.

The Downside to This (or Any) Method


While it’s kind of cool to pay your mortgage with a credit card, it does require some work, as noted above. And if you have a jumbo mortgage payment, this method probably won’t work very well given the low funding limits.

You certainly won’t want to send partial payments and find out that your loan servicer paid down your principal or simply returned your check.

Sure, you can load money from a credit card and bring in the shortfall from a checking or debit card, but at that point it might not be worth your time and energy.

After all, how much will you really “earn” from using a credit card. If your monthly mortgage payment is $1,000 a month, this method should work out okay.

But that would only equate to 12,000 points or miles annually, which is worth maybe $120 or slightly more if redeemed for travel or something more lucrative.

The earnings could also be used to pay down your mortgage a little bit faster if you put it toward the principal balance.

In that sense, it could be worth it. Just be careful not to miss a mortgage payment in the process.

source:  thetruthaboutmortgage.com

5 Options for Avoiding Foreclosure

Falling behind on your mortgage payments may mean that foreclosure is around the corner—something everyone wants to avoid. Foreclosure damages your credit and can keep you from owning another home for years.  Here are 5 options you still have.

1. Transfer the loan.

If you’re less concerned with keeping your house than you are with keeping your credit and financial history intact, you may want to check to see if your mortgage is assumable or not. If yours is, then you could transfer the loan to anyone who qualifies, allowing you to sell your home with minimal fees.

Even if your loan isn’t assumable, you may be able to take a name off of it, or refinance to change the name on it.

2. Try for a loan modification.

In 2009, the government created HAMP, or the Home Affordable Modification Program, to reduce the monthly payments of qualified homeowners to 31% of their monthly income. Often, this means stretching the loan over a longer term or changing the interest rate structure.

Of course, “qualified” is the operative word here, as not all lenders participate in the program and those that do have different qualification criteria. Often, you’ll have to provide documentation about your current hardship and prove that you will be able to afford a modified mortgage.

3. Short sell your home.

Short sales usually allow you to get out of your home with less damage to your credit than a foreclosure, but they do generally involve selling your home for less than the balance of your loan. Some lenders may be willing forgive the difference, but that will vary depending on your situation.

4. Get a forbearance.

You don’t hear about forbearances very often, but they can be very helpful if your financial hardship is temporary in nature. A forbearance suspends or reduces your payments for a set period, allowing you time to resolve your problems.

5. Rent out your home.

If you haven’t yet gotten too behind on payments—or if you see problems on your horizon—and want to keep your house, then you always have the option of renting out your house and finding a cheaper apartment somewhere else. Many homeowners find that that this temporary solution can provide free up enough money to make the mortgage payment.

source:  totalmortgage.com

Why Close a Mortgage Before the End of the Year?

With End-Of-Yearthe holidays inching closer and the New Year not far behind, you may be thinking it’s too late to close on a new loan by January 1st—or that it’s not worth the hassle during an already hectic time of the year.




There’s still time. Get pre-approved by the end of November, and we’ll close your loan before January 1^st with as little stress as possible, thanks to our 30 Day Purchase Guarantee.* Plus, there are some upsides to getting your loan closed and your new home bought before the year ends:



Tax benefits. This is the big one, the reason most will advise you to close quickly, if you can. Buying a new home entitles you to tax deductions that can save you tons. Here’s a quick rundown: 

• Closing cost deductions let you claim the points or origination fees on your new loan, but it only applies for the year you closed the loan. Close now, or wait a whole year.
• Mortgage deductions allow you to deduct your mortgage interest. This works out well for newer home owners, since early mortgage payments tend to be mostly interest anyway.
• Property taxes are deductible, too. That means that from this point forward, you will be able to claim property taxes on your income tax.

Don’t forget the non-financial positives to closing soon:

Get into your home before the holidays. Okay, so depending on the timing, “getting in” may not be quite the same as being completely unpacked and settled in, but once the keys are in your hand and the boxes have been delivered, the pressure’s officially off. Unpack at your own pace and enjoy the holidays.

It’s only going to get colder. Winter doesn’t officially start until December 21^st, so if you live in a chillier part of the country, you may still have some time to get into your new house before the worst of winter hits and moving turns miserable.

A fresh start in a new home for the New Year. Sure, you could have your fresh start on January 17^th, or 28^th, or even in February, but it’s just not the same as waking up on January 1^st in a new home.

If you’re thinking about taking us up on our offer, take a look at our rates and consider giving us a call or filling out an online form. We’d love to hear from you.

*Terms and conditions apply.

source: totalmortgage.com

When Rent-To-Own is the Way to Go

If you’re not familiar with the rent-to-own structure, it’s for good reason.

When the housing market was booming, these options were few and far between. But with the market now moving more cautiously you may see more and more opportunities as a buyer and a seller.

First, let’s take a quick rundown of the basics
If you’re a seller thinking about turning your home into a rent-to-sell property, you first need to set a fixed rent and sale price. These should be negotiable, just like normal home prices, but keep in mind that once that agreement is signed, the sale price is locked into place for the length of the rental term, regardless of how the market changes.

There are a few other special differences. In addition to the rent, the renter is going to have to pay an upfront option fee, which will be put toward the down payment if the renter decides to buy the house and kept by the seller if the renter moves on.  On top of that, the renter will also have to pay a rent premium, or an amount in addition to the rent that will go toward the down payment.

The term of the rental agreement tends to be 1 to 5 years, at the end of which the renter has the option of buying the home at the agreed upon price with the down payment partially funded.

The Positives

If done right, this sort of deal can prove beneficial to both sellers and renters.

Rent-to-own can be a great plan B for sellers having a hard time getting a bite on their property. Houses still aren’t selling as fast as they did pre-2007, and if you’ve already moved into a new home, there’s a good chance you’ll be stuck paying two mortgages. A rent-to-own agreement could easily keep you above water for now and net you a sale later down the road.

Renters (slash potential buyers) benefit too. If you don’t have a great credit score, the rental period gives you time to build it up. Similarly, if you don’t have the funds saved up for a down payment, rent-to-own can be a smart way to put money toward one.

…and the Negatives

No surprises here—there are potential downsides for both the seller and the renter.

If you’re the seller, you have to abide by the contract even if the value of your home rises, or if someone makes an offer to buy it out right. If the renter backs out, you’re also back to square one, and potentially stuck with mortgage payments on a second house.

On the renter end, making a late rent payment often voids the option fee for that month, which will take a chunk out of your eventual down payment if you’re late a few times a year. If you decide not to buy the house, you won’t be able to get your option fee back, which means you may be out thousands of dollars.

There have also been cases of less-than-legit sellers offering rent-to-own options on houses under foreclosure. In this scenario, the bank gets the home and the renter is out their option fee and premium. Know what you’re getting into, and there should be no reason why both buyer and seller don’t benefit.

source: totalmortgage.com

Three Unique Ways to Pay Your Mortgage

If you’re a homeowner, you know the importance of making regular monthly payments. This protects your credit score, and helps maintain a good relationship with your mortgage lender. However, if you start to experience payment problems, or if you want to pay off your mortgage sooner, options are available to you. The truth is, there are many creative, unique ways to pay your mortgage — and most ways are financially beneficial. 

1. Rent a room in your home as office space
Maybe you’re not comfortable with the idea of getting a roommate. However, if you have free space or an empty room on the property, consider renting this space as office space.

Some home-based business owners seek a separate office space for work, especially if they have young children at home and find that it’s too difficult to concentrate. They might not be able to afford space in an office building, but they may have resources to rent space in a converted garage, a finished basement or a detached room on your property that’s suitable for an office.

You can rent your extra space on a monthly basis, and then use funds to help cover your mortgage payment if you’re having difficulties. Since this money counts as rental income, set aside about 20 percent to 25 percent for income taxes.
 
2. Use a credit card to pay your mortgage

The idea of using a credit card to pay your mortgage may sound scary, but this method has its benefits. It’s an opportunity to accumulate credit card reward points faster.

If you have a credit card with a rewards program, then you probably know that you can earn miles or points for every dollar you spend. Once you’ve earned enough points, you can redeem these for flights, hotels, gift cards, merchandise, cash or statement credit. However, to benefit the most from a rewards program, you have to use your card often.

Some banks do not accept credit card payments, such as Bank of America. So, speak with your mortgage lender to see if this is an option. If you use a credit card to pay your mortgage, make sure you immediately pay off this charge. Don’t charge your mortgage and then carry the balance from month-to-month.

3. Pay half your mortgage every two weeks

You might be unable to afford a 15-year or a 20-year mortgage. Even so, if you’re adamant about paying off your home sooner, consider a bi-weekly payment schedule.

Speak with your lender to see if they’ll accept bi-weekly payments. If so, you’ll pay one half of your mortgage payment every two weeks. This is the equivalent of one extra mortgage payment a year — which may not appear to make a difference. However, one extra mortgage payment a year reduces your total interest charges and reduces your mortgage term by seven or eight years.

Bottom Line:
Getting creative with your mortgage is one of the fastest ways to eliminate the debt sooner. And if you’re having payment problems, creativity can help you drum up cash and keep your mortgage loan in good standing.

source: totalmortgage.com

The Advantages of a Semi-Monthly Mortgage Payments

Buying a home is a large responsibility, and the monthly payment will likely be your single largest expense every month.  However, just as there are a variety of terms to choose when deciding on your mortgage (such as 15 year or 30 year or fixed rate or adjustable rate), there are also a variety of ways you can make your payment.

Some people prefer to make semi-monthly mortgage payments rather than one monthly mortgage payment.

What Are Semi-Monthly Mortgage Payments?

If you choose to repay your mortgage on a semi-monthly basis, you will likely be required to make half of your monthly payment on the 1st of the month and the other half on the 15th.

What Are the Advantages of Semi-Monthly Mortgage Payments?

Semi-monthly mortgage payments offer several advantages:

1. May be easier to make payments.  If you are paid on the 1st and the 15th, making semi-monthly mortgage payments may be easier than a monthly payment because you are making smaller payments, and you are making those payments when you are paid, so the money is easily available.

2. Can lessen how much you pay over time.  Because you are paying twice a month, you reduce the amount of interest that you pay over the life of the loan.  When you only make one payment a month, the interest balance can continue to accrue over 30 or 31 days.  With semi-monthly payments, the interest never accrues more than 15 days.  For instance, if you have a mortgage for $200,000 at 5% interest for 30 years, you would pay $186,513.10 on a traditional mortgage that is paid once a month.  However, if you pay on a semi-monthly basis, your overall interest paid over the life of the loan is $186,339.34, or $173.76 less over 30 years.  While this isn’t a huge sum, you reap this savings simply by changing when you make payments.

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What Is the Difference Between Semi-Monthly and Bi-Weekly Mortgage Payments

Many people think semi-monthly and bi-weekly payments are the same, but they are not.  With a semi-monthly payment, you are paying on the 1st and 15th of every month.  With a bi-weekly mortgage payment, you are paying every two weeks, so in the course of a year, you actually make the equivalent of 13 monthly payments (52 weeks divided by 2 = 26 payments = 13 monthly payments).  Over the years, the extra payment can be a powerful tool to decrease your mortgage balance.

Bi-Weekly Mortgage Payments Are More Effective

While the above example showed that you could save $173.76 over the course of the mortgage simply by making semi-monthly payments, the results are much more dramatic with a bi-weekly mortgage because you are making an extra payment every year.  By making bi-weekly payments, you would pay off your 30 year mortgage in a little more than 25 years and save $34,356.98 in interest!

While a semi-monthly repayment plan does reduce the amount of interest you pay slightly and can make your monthly mortgage payments seem more manageable, if you are looking to slash a number of years off your mortgage and save thousands of dollars on interest, a bi-weekly mortgage may just be the way to go.

source: everythingfinanceblog.com