It is becoming increasingly popular to use a mortgage in lieu of a low-interest savings account. Is this a good idea?

The latest version is a home-equity line of credit that is used to buy a home. It is marketed as a way to pay down your mortgage faster than the traditional mortgage. But it only works at this if you use it correctly. It could be both good and bad that you can use the funds from the account whenever you want to. All you have to do is write a check.

It is basically an adjustable-rate home-equity credit line that is based on the value of the property. You make interest-only payments for the first 10 years. The balance is then fully amortized over the next 20 years. You will pay both the interest and the principal at this time.

If you go ahead and own the home for ten years, you could be facing amazing monthly payments. Your monthly payment could more than double on you. Yet, there is no negative amortization on this loan program. The interest is capped for five years and high-credit score borrowers are currently looking at a cap of 8% over the starting rate. In today’s world, the maximum the interest rate could hit is in the 14% range. Yet, after five years, the cap could revert to either 21% of the state’s usury.

This plan could work well for the dedicated purchaser who puts all extra money and bonuses into the mortgage account as payment on the balance. The interest is then lowered and the loan is paid off much faster. Most borrowers must have a score of over 660 to be approved.

Many advisors suggest the use of a 30-year fixed-rate mortgage with interest-only payments for the first ten years instead. Yes, the payment will go up after the inital ten years, but the interest rate won’t. The concern against the equity-line to purchase is that borrowers would simply write checks without thinking about the addition to their mortgage balance. Plus, the interest rate is adjustable — always a risk.

If you are considering an alternative loan program for the purchase of your home it is important that you sit down and do all of the necessary math. For example, you should calculate how high the payment could go due to rising interest rates on an adjustable rate mortgage. You should be able to afford the worst. If you can’t, you probably should look to a less expensive home.

If you only plan on living in a home for three to five years, a loan in which the interest is fixed for five years is perfect for you. You get the lower rate, but you have to be sure that you are going to want to move in the time period. It still remains that the best long-term bet for a mortgage is the 15-year fixed rate mortgage. You pay less interest and build equity faster.

Other new trends to watch for in the marketplace include mortgages that can be automatically converted into reverse mortgages and longer fixed-rate term mortgages.

Martin Lukac represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

Share This

Mortgage applications fell for the first time in four weeks as demand hit the lowest level in almost three years.

According to the Mortgage Bankers Association weekly report, the seasonally adjusted index of mortgage application activity for the week ended August 25 decreased 0.9%, landing nearly 23% below last year’s level for the same week.

The decline remained consistent with the slowdown being seen in the housing market.

“We’re still in the soft landing camp for the housing market,” explained John Shin, senior economist for Lehman Brothers. “We do see a sizable impact on the economy and expect that the slowing housing market is going to trim roughly one percentage point off of growth over the rest of this year and the next year as well.”

For the sixth straight week, home refinancing demand increased as a result of decreasing mortgage rates.

Last week, the 30-year fixed-rate mortgage rate averaged 6.39%, well below June’s four-year high of 6.86%. However, they were well above last year’s level of 5.73%.

Seasonally adjusted index of refinancing applications increased slightly for the week, up to 1,609.2 from 1,608.5.

The refinancing share of total applications increased to 41.5%, up from 40.6% the week prior. This marks the highest level since February.

Fifteen-year fixed-rate mortgages averaged a rate of 6.06%, up from 6.04% the week prior. The one-year adjustable-rate mortgage also saw an increase, up to 5.97% from 5.91%.

ARMs made up 26.8% of total loan applications, an increase from 26.4% the week prior.

The MBA’s survey covers 50% of all US retail residential mortgage loans. Respondents include mortgage bankers, commercial banks and thrifts.

Martin Lukac represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

Share This

When buying a home, there are many things that go into your mortgage. On your good faith estimate, you may see several types of insurance that you don’t even know what are.

Both you and your lender want you to keep your home. The lender does not want you to default, it cost money to foreclose. That is why they ask for so many different types of insurance. For example, if you put less than 20% down, you will be required to pay for private mortgage insurance. This insurance is purely for the lender, not for you.

But one type of insurance that may be offered to you is mortgage insurance. This protects both the bank and your family. If you pass away, the insurance policy will pay off the remainder of your mortgage balance. Your family gets to keep the home and the bank gets its money.

You may also be offered this insurance on your auto loans, secured loans, signature loans and credit cards. The same idea applies to all of these loans. In the case of your death, the policy pays off the debt.

But you shouldn’t just jump for this type of coverage. It depends on your situation.

My parents had it on three of my father’s credit cards. They did not have life insurance as my father was quite elderly and not in great health. Their credit cards were there only debt. When he passed, the insurance paid these cards. Yes, my mother probably paid the amount covered to the company in premiums, but it was a nice situation for her to have them all taken care of. She didn’t have to dip into her savings.

Personally, my husband and I have life insurance. We don’t need mortgage insurance because we have adequate life insurance coverage to meet any future needs in the case of one of us passing. If you already have insurance coverage, you don’t need to pay for dual coverage.

If you don’t already have life insurance, is mortgage insurance a good idea?

Remember that the bank is a money lender, not an insurance provider. You are more likely to have better premiums and coverage through term life insurance than from the bank.

Also, the premiums on your mortgage payment protection, also called MPP, remain the same throughout the life of your mortgage. But the balance of your mortgage is decreasing. You are paying the same for less coverage. Doesn’t make a lot of sense.

The most important thing to remember is that the mortgage insurance will only take care of your mortgage. If you pass on, there will still be other bills to be paid.

It is a good idea to forgo the mortgage insurance and take out life insurance, if possible. If you aren’t able to get life insurance due to various medical reasons, then by all means, protect your mortgage.

Martin Lukac represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

Share This