Save Money by Shortening the Term of a Mortgage Loan

The majority of people refinance in order to save money, which typically entails jumping to a lower rate. However, you can also save lots of money by cutting down the term of your loan even at the same low interest rate.

According to Karen Mayfield from Bank of the West, nowadays, there are lots of lenders that offer the same 30-year rate on mortgages with terms ranging from 20 to 29 years. Also, the majority of lenders offer the same 15-year rate on loans with terms between 8 to 15 years.

Although you may not instantly save money in terms of your monthly payments but you could save a lot from interest over the shorter term of your new mortgage.

However, the possible negative aspect of this shorter-term mortgage is that you might have a lesser tax deduction for your mortgage interest, but it’s still an uncertain disadvantage.

In addition, mortgage interest is not a dollar-for-dollar write-off. Instead, the deduction is dependent on your income-tax bracket. Thus, if you are in the 15 percent bracket, then you will receive only 15 cents for every dollar in mortgage interest.

Furthermore, there is the question whether or not mortgage interest will stay deductible. While it’s going to be a long time from now before the Congress would remove that benefit, it will be on the table if and when the policymakers amend the tax code of the nation.

For instance, you have a 4-year-old, 30-year mortgage with interest of 6.5 percent, and monthly payment of principal and interest for a total of $1,896. If you refinance at 4 percent into a 30-year mortgage of $288,000, your monthly payment will decrease to $1,375, which means monthly savings of as much as $521. However, you’ll be paying an extra $206,984 in terms of interest over the term of the new loan.

Mayfield advises that although not everyone agrees with shortening the term of their mortgage, you might as well consider doing so if you are wealthy enough make the same payment as you do at the moment.

What You Need to Know About Mortgage Loans

If you want to insure that your loan’s process is going to be hassle free and smooth you should follow these tips:

a. If you want to have a mortgage, it will be wise to not apply for any credit cards or get debt cards, car loans, buy property or furniture, etc. If you want to buy new things for the house you are trying to get then you have to wait until your mortgage is approved. If these purchases appear on your credit report, then the lenders will have to factor the purchase in your qualifying ratio.

b. Recheck your credit report you have to make sure that your loan officer’s records tally to yours and you has to make them know about any missing information. If you have missing information in your reports then it might come to haunt you later in your closing.

c. You also have to save all your receipts, bank statements, credit card statements and other proofs of your financial standing until the closing of your mortgage. These are very important documents that might be required from you by the lender in the future.

d. You have to make known to your lender that you are receiving gift funds and large deposits which are not included in your normal deposits. The lender will then have to make sure that you have indeed received these deposits from a donor who is capable of giving such a large amount. It will be sourced and explained by you. If it was a bonus from your job then you have to present a check. If you sold a body part like a kidney then you have to provide proof like paperwork and pictures of your operational scar.

e. If you recently changed your name, or your job then you have to inform your loan officer. Also, supporting details and documents will be needed to verify these changes, and the reason for the change. If for example you were forced to change jobs or quit then you have to give an explanation.

Homeowners’ Emergency Mortgage Assistance Program Back to Life

Because of money from a lawsuit settlement, a state mortgage assistance program is being revived.

The Homeowners’ Emergency Mortgage Assistance Program is again offering help to struggling homeowners. It offers loans to those were not able to make their monthly mortgage payments, nor bring their balance current, nor subsidize payments for up to three years.

In order for borrowers to qualify for these loans, they should be living in the property as their primary residence, is struggling from financial problems that were not their fault, and have an acceptable probability of being able to continue paying.

Roughly 45,000 households have received assistance from the program since its start three decades earlier. In the last few years, the HEMAP program received funds of approximately $11 million every year, allowing it to give loans ranging from 1,500 to 1800 loans annually.

In Allegheny County, the number of loans dropped during the last half decade, from 212 in the year 2007 to 109 in 2010, and 92 in 2011. However, new loans from the Pennsylvania Housing Finance Agency, which is in charge of running the program, were stopped following the budget cut in the previous year to $2 million.

Fortunately, a multistate settlement collected a total $25 billion from the five biggest mortgage loan services in the nation. This means that a total of $66.5 million will be given to Pennsylvania as funding for the program.

According to a measure that the state Legislature accepted in June, 90 percent of the funds, or roughly $60 million, must be spent on the HEMAP program over the next three to five years. The rest will used to fund housing-related consumer protection programs, with the help of the state attorney general’s office, and also for legal assistance in terms of housing.

Gov. Tom Corbett said that the funding for HEMAP will mostly help struggling homeowners, and at the same time, it is important in the recovery of the state’s housing industry.

Growing Number of Over-Indebtedness Households

The start of the economic crisis in the year 2008 has lead to an increase in the number of households that are over-indebted on a constant basis.

While over-indebtedness is seldom brought about by a single factor, most of the debate on over-indebtedness seems to be concentrated on mortgage debt, since it is typically the largest financial commitment in terms of a consumer’s finances.

It is important to note that almost every member state in the EU has legislation offering protection for consumers in cases of possible foreclosure, together with voluntary lender forbearance schemes.

However, consumer groups are claiming that these are special times and special actions must be taken in order to solve the increasing over-indebtedness.

In addition, legislators at national and EU member state level seems to be dedicated to solve this problem. Their main objective is to attempt to avoid foreclosure. However, the solutions presently being considered at EU level in particular, might lead to several legal, economic and ethical issues.

One of these solutions is commissioned by DG Internal Market and Services’ financial services user group. London Economics is the consultant in charge and must conduct a mapping exercise of the legal environment in 17 member states to determine all formal debt reductions solutions, which permit consumers to go back to a financially sustainable life by removing some or all of their debts.

The research will concentrate on the following as possible alternatives to foreclosure like the availability and use of personal bankruptcy and datio in solutum of mortgages as legal solutions to over-indebtedness. Datio in solutum is, in other words, payment in kind and basically like the system of non-recourse mortgage loans, in which the return of the property is enough to pay back the outstanding debt.

However, advocates of non-recourse mortgage loans claim that the cause of the economic crisis in 2008 was widespread irresponsible lending and not non-recourse loans.

Increasing Parental Assistance in Buying Homes

In recent times, there are many couples who do not have enough money to buy their own home, which resulted to an increasing number of pensioners with large mortgages. Considering the rising home prices, these couples are losing hope of buying their own home without financial assistance from their parents.

According to a recent report from Migdal Capital Markes, it would take 24.5 years for young couples earning the average wage to save NIS 450,000 for a deposit, assuming they set aside 10 percent of their net monthly salaries. This amount of money is only sufficient for a deposit on a NIS 1.5 million mortgage. The couple would still need money for their monthly payments.

The two main financial problems in terms of buying a home are the deposit, which is typically equivalent to 30 percent to 40 percent of the home’s cost, and the monthly payments.

Idan Elkabetz, a partner in consulting company Atid Mortgages, said that involvement of parents in buying a home is greater now than in the past. Due to the recent increases in home prices, there are a few options for young couples. It’s either they pay excessive prices or move away.

Parental assistance is especially needed for apartments that cost NIS 1.5 million or higher, which need deposits of NIS 500,000 to NIS 600,000. In several cases, this money comes from the parents.

David Meizlik, head of the mortgage department at Mercantile Discount Bank, said that the major challenge is to come up money for the deposit. They can get money from their savings, wedding presents, loans from employers and lastly, their parents.

Meizlik added that parental assistance is mostly significant in among the ultra-Orthodox public and the national religious because members of these communities marry at a young age. In contrast, secular couples typically marry later, so they have higher amounts of savings, they’re not dependent from their parents anymore, and have been working for many years that a few have attained management positions.