Sunday, November 29th, 2009 at
9:39 am
Mortgage cycling is a way home owners can use to try and pay off their mortgages early. By making extra payments and paying off your mortgage early you can save yourself many thousands of £s in interest payments.
The basic principle of mortgage cycling is to have a flexible mortgage where you are able to pay extra payments every 6 or 12 months to reduce the amount of the mortgage debt.
If you have a mortgage for £100,000 at an interest rate of 6%. You would be paying monthly payments of about £600. The total amount you would pay back on a 30 year mortgage would be £225,838. Of this £225,838, £115,838 is interest payments. In the early years of your mortgage a lot of the monthly payment is just for paying interest. You do little to reduce the actual amount of the loan. After a longer time period of paying the mortgage then a higher % of the monthly payments goes on paying the mortgage debt and less on paying interest payments
However if you were able to reduce the time period of paying back the debt. Then the total cost of the mortgage would be much lower. For example if you could pay the debt back in 20 years then the debt repayments would be only £71,943.
This is when mortgage cycling can be used to make additional payments to reduce the mortgage and pay it off early. Basically you make a commitment to pay a lump sum payment every 6 or 12 months to reduce the “principal” of your mortgage. (Principal here refers to the amount of debt that you have.) If you have the enough disposable income to pay this extra payment on top of your regular mortgage payments then it can be very beneficial. The difficulty is when you struggle to meet these extra demands. Some mortgage advisers suggest that it can actually work out better in the long run to take out personal loans, (secured against the value of your house) to make these payments if necessary. At first glance this doesn’t seem to make economic sense. The personal loan is likely to be at a higher rate of interest than your mortgage. However if these loans are just temporary to overcome cash flow difficulties then in the long run it can still save you money. This is because of the big savings that coming from paying off the mortgage early as illustrated in the above example.
To many this seems disadvantageous because it is risky and complicated. However if you are confident of being able to pay these loans off quickly mortgage cycling may save you money in the long term.
It also depends how keen you are to pay off your mortgage early. It is worth remembering that if you make mortgage payments of £600 a month then this may be a high % of your salary at the moment. But in 10 or 15 years, assuming inflation and real wages rise, then this £600 will become a smaller % of your income. Therefore it becomes easier to pay extra in a few years, rather than putting pressure on yourself at the start of a big mortgage.
By: Richard Pettinger
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Friday, November 13th, 2009 at
11:54 am
Mortgage calculators are tools that allow you to estimate your monthly payments on a fixed rate mortgage, calculate your total cost of borrowing and even give you an approximation of the size of mortgage that you can afford.
A basic mortgage calculator will take the sale price of the home, the size of the down payment, the length or term of the mortgage and the annual interest rate to come up with an estimation of your monthly payments.
Private Mortgage Insurance Calculator
A good mortgage calculator will also include the cost of private mortgage insurance (PMI) for down payments that are less than 20% of the sale cost.
For example, a basic mortgage calculator may calculate a $200,000 mortgage with $20,000 down and an interest rate of 6.5% amortized over 30 years as having a monthly payment of $1137. However, a mortgage calculator that includes the estimated $100 per month for private mortgage insurance (payable until the 20% down on the total capital is reached) will give you a better approximation of your monthly payments.
Property Tax Calculator
An even better mortgage payment calculator will ask about property taxes in your area. Typically, the mortgage calculator will ask you for the property’s prior tax rate. From there, it’ll calculate an estimated basic increase in property tax values and give you an approximation of your expected monthly payments. Remember, a $200,000 home can expect to pay around $2000 a year in property taxes; that’s an extra $166 a month.
Extra Payment Calculator
An extra payment calculator lets you input your expected mortgage payments along with an estimated additional monthly or yearly payment. In turn, it’ll tell you how that amount affects the final date your mortgage is paid off.
For example, as stated earlier, a $180,000 30-year mortgage with a 6.5% interest rate will have monthly payments of approximately $1137. If the mortgage starts on Jan 01, 2009, the estimated pay-off date is Jan 01, 2039.
An extra payment calculator will show you that adding just $50 per month to your payments will push your mortgage end date up to 2035 (that’s 4 years earlier), and adding $100 each month will bring it up to 2032 (that’s 7 years earlier).
The Problem with Mortgage Calculators
Unfortunately, mortgage calculators don’t always reflect the truth of sometimes fluctuating interest rates, early payment penalties, and the longer terms on refinancing mortgages.
While a mortgage calculator can give you useful estimates, it’s always best to speak directly with a lender or mortgage professional to gain a clear and accurate idea of your exact monthly mortgage costs.
By: Jack Burnette
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Sunday, August 23rd, 2009 at
6:48 pm
Before a borrower applies for a home loan, many factors come into play that will affect everyone involved from the seller and real estate agent to the buyer, banker and broker handling the mortgage. Problems are reduced to just a few with a direct 30 year mortgage from the local bank, but they still exist.
Interest Rates
First and foremost are the interest rates. They move up and down as fast as you can say Mississippi. When a prospective borrower learns of a rate, they immediately want to lock in the rate prior to the application process without knowing whether or not interest rates will go up, down or sideways. The broker or the loan officer will often ask if they want to lock in the rate. 99% of the time, the borrower agrees. The loan officer often uses this as a sales tool to make the borrower commit to their efforts.
Economy
The most influential aspect, and biggest problem, of course, is the economy. Although interest reflects the wishes of the Fed in their attempt to manipulate the markets to conform to their understanding of stability, the fact is that the overall economy, including unemployment, inventories, durable goods, consumer confidence along with a myriad of other indicators determine what is going to happen to interest rates and terms. Without taking all of this into consideration before you commit to a mortgage could spell disaster.
Taxes
Taxes are always a consideration. If there is pending legislation to alter the code in any way that will either increase or decrease the desirability every loan, from a direct 30-year fixed mortgage to a 2 year adjustable rate mortgage. In other words, taxes affect all loans, particularly for home owners
Employment Prospects
Anticipating the outcome before it happens in any event, particularly sports, is most often futile. However, as an insider into your employment, you have more than a 50-50 chance at determining the stability of your current position and future employment prospects. If your occupation is always in demand then there is no worry, otherwise, anything can happen.
Real Estate Values
Although in the past everyone assumed that values were going up, very few anticipated the bubble bursting. Keeping an eye on the trends in the real estate market early on will give you more than your share of ammunition to decide the right timing to purchase a new home.
Family Planning
Anything can happen and always does when it’s least expected. Purchasing a new home for a family of four requires certain accommodations, a family of three, less. But what happens after the home is purchased and everyone moves in and suddenly the household is expecting a baby or two. How does that problem affect your current 30-day mortgage? Chances are it will force a sale of the property and the acquisition of another, which means another mortgage and with it the same problems that may occur on the new mortgage as well. If you are planning a larger or smaller family, anticipate how it will impact your housing situation first.
There are many other intricacies when buying a home and financing it with a mortgage. Learn about the house you are buying, but more importantly, learn all you can about the mortgage.
By: Arianne Galbraith
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