Tips And Guide For Debt And Loan Management

Reverse mortgage is actually a unique type of home loan that allow you to change part of the home equity into cash. Your home equity that built up over the years will be paid to you. It is different with a conventional home mortgage where no repayment is necessary until the home is no longer used by the borrower as a primary residence.

You may apply for reverse mortgage by looking for a trusted Home Loans & Mortgage Refinancing service. It is preferable that this service already established since 10 years ago and acquire a good performance records.
This service is available in all states. A couple months back, I helped my friend to look for a trusted california reverse mortgages service. We found a service that has been established since 1997 with very competitive rate that also cover Colorado, Washington and Oregon area. So anytime you’re looking for ca reverse mortgages, you don’t have to look very far.

It is also important to find out whether you are getting a lock-in agreement. A lock-in agreement is a lender’s agreement to make a loan at a particular rate, with or without certain points, provided that the loan is closed by a specified date.
A lock-in agreement can hurt you or it can help you. When interest rates are rising, a lock-in agreement protects your lower rate while the loan is being processed, but in an environment where interest rates are falling, a lock-in may prevent you from obtaining the lowest possible mortgage rate.

A decision on whether a lock-in may be advisable will depend on whether you think interest rates will rise, fall, or remain steady during the time it will take to process your application. You’ll also need to consider that some lenders may require a fee for such a lock-in agreement, which can often be as high as one point. Beware of short lock-in periods. Ask about the average time it takes to process an application, and do not accept a lock-in period that fails to provide a reasonable cushion of time for you to receive a decision. Do not accept an oral lock-in agreement. Always ask for the lock-in agreement in writing so that it will be enforceable. Keep in mind that lenders do not need to comply with the terms of the lock-in agreement if the information they request is not provided promptly. If, after a lock-in is made, an applicant fails to comply with all of the conditions contained in a loan commitment, or if any information given in the application proves to be significantly inaccurate, a lock-in agreement will be invalid.

Be sure to meet all of your obligations. Be sure that your application contains detailed and accurate information. Lenders may find errors while processing your application and inaccuracies will needlessly delay the process. Provide all the additional information requested by a lender and retain documentation. If you are unclear about what a lender needs, request a clarification. Do not make assumptions.

One of the advantages of applying for a loan with a lender is that you will deal directly with the entity (person or company) that will make the decision on whether to approve your loan application. This direct contact offers less opportunity for miscommunication to occur during the application process.
Brokers, in contrast, are unable to make credit decisions or issue mortgage commitments.
Nevertheless, you may find that a broker can provide you with more choices of loan products than any direct lender. If you have bad credit, brokers may be better because they can shop difficult applications to a variety of direct lenders.
Although there are no fixed rules to determine whether you should choose a direct lender or broker, you should know, when submitting your application, which type of mortgage origination organization you’ve selected.

Interest rates for home loans are based on a number of factors. The most important factor is the total loan-to-value that the loan or equity line will create. The higher the equity line (80 percent, 90 percent, 100 percent, and 125 percent), the more the loan will cost. The total loan size also determines the interest rate for many lenders. A $7,500 home equity loan may carry a rate of 9.75 percent, but a $100,000 loan may be charged only 8.5 percent. Some programs also carry introductory teaser rates for the first three or six months, often at 6 percent or less.
With an equity line of credit, an important factor is whether the borrower will be taking out funds when the credit line is established and whether the borrower is transferring or consolidating other debt balances. One New York lender, for example, offers a home equity rate at the prime rate for the life of the loan if a borrower is transferring at least $40,000 from another home equity line. Usually, this lender charges the prime rate plus 1 percent for the same loan.
The last factor affecting rates is based on whether the borrower or the lender will pay closing costs. Some lenders give borrowers the option of a lower rate if they pay closing costs, which include appraisal, attorney, recording, and other fees that, usually, are under $1,000.
Other lenders tie closing costs to the total loan amount. If the lender knows the borrower will take out $25,000, for example, then the lender will not mind paying the closing costs because it will make back the costs with interest payments within a few months.
You should pay the closing costs if doing so will mean a lower rate of interest. Throughout this blog, we have emphasized the need for long-term thinking. People primarily go into debt as a result of short-term thinking. Refinancing a home loan is a perfect example of this.
A debtor thinks short-term, “I need the money, so paying closing costs is a bad idea.” A saver thinks long-term, “I want a lower interest rate more than I need an extra $1,000 right now, so paying closing costs is not so painful.” The saver knows that paying 7 percent instead of 8 percent on a $40,000 loan over 30 years, even if it means paying $1,000 in closing costs, would save him a lot of money over the life of the loan. Debtors never prosper.

How does a mortgage lender decide to approve or deny an application? Basically, there are three fundamental areas that a mortgage underwriter looks at when making his decisions. Those areas are commonly referred to as the three Cs of refinancing underwriting. They are credit, character, and collateral.

? Credit. The first C, credit, refers to qualifying for the mortgage payment based on your monthly income. The monthly housing expense (principal and interest, plus one-twelfth of the annual taxes and insurance) cannot exceed a certain percentage of your income, usually 28 percent, although lenders offering mortgages at 125 percent of the value of the property are more lenient.
? Character. This area has to do with how faithful applicants are in making their credit payments on time. It is the most crucial indicator, because if someone has paid credit cards, car payments, and a previous mortgage on time, he will be more likely to pay his new mortgage on time as well.
? Collateral. Collateral refers to the home being refinanced. An appraisal may be done to ensure that the house is worth the amount being loaned. An independent appraiser uses recent sales of comparable homes in the area to determine whether your price is similar.

The typical home equity credit line is different than an equity loan. An equity loan is a lump-sum loan secured by the house. An equity line of credit is a revolving line of credit. A borrower is approved for a specific amount of credit, which will become the maximum amount that can be borrowed under the plan. Lenders usually require the line to be at least $5,000, but total credit lines can range up to $500,000.
Once the home equity line is in place, a borrower can borrow up to the credit limit at any time. Many plans require a minimum draw against the line of between $250 and $500. The borrower is usually required to repay at least the minimum interest due each month for the first 10 years. The interest rate on home equity lines is variable, is usually based on the prime rate, and is capped at a maximum that ranges from 15 to 20 percent.

Over the past few years, the highly competitive nature of home equity lending has caused lenders to offer an increased number of programs to consumers. In addition to the usual rate competition, lenders continued to increase the maximum amount they would loan on a property. Programs have leaped from 80 percent to 90 percent to 100 percent, and lately they have topped out at a whopping 125 percent. What that means is that today, Maria could not only borrow the entire amount of the equity in her property ($30,000), but she could borrow up to 125 percent of the value of her home. Unbelievable as it may sound, Maria could obtain a loan for $55,000 in addition to the existing first mortgage. Borrowing this much is a risky proposition if she cannot afford the monthly mortgage payments.

Not only are loans more flexible, but credit standards have also been relaxed to a certain extent. Now borrowers who do not meet normal credit requirements will not be rejected automatically, but they probably will be offered a different loan at a higher rate

Refinanced home loans can take many forms: a refinanced first mortgage, a second mortgage, and even a third mortgage. Refinancing to lower your interest rate or to get a loan that you are more comfortable with makes sense to us. Refinancing to pullequity out of your house (so-called equity loans) should be considered with caution.
It is understandable why you would want to use your home equity to help you get out of debt. Home equity has replaced the savings account for many Americans. Instead of dipping into their savings when times get tough, they take out a home equity loan.
To understand why this option looks better than it is, you must first understand the difference between secured and unsecured debts. A secured debt is one that is tied to some sort of collateral. For example, a bank would be happy to loan you the $25,000 you need to buy a new car, as long as it holds title to the car. If you do not pay the bank back, it will repossess the car. The car, which is the collateral, secures the loan.
With an unsecured debt, there is no collateral protecting the creditor. A credit card is an example of an unsecured loan. When you get a new Visa card, the card issuer does not ask you to pledge any property as collateral to secure the debt you will incur using the card. You simply promise to pay back the debt. That debt is unsecured. The majority of debts people have, such as credit cards, medical bills, and department store bills, are unsecured debts.
A home equity consolidation loan can be very risky because you are trading unsecured debt for secured debt. When you stop paying an unsecured debt, all a creditor can do is write demand letters, make a lot of phone calls, and possibly sue you. Although this activity may prove to be annoying, it certainly is not devastating. But failure to pay back a secured debt can be devastating. When you stop paying a secured debt, not only do you get the same letters and threats, but, far worse, you also lose the collateral that secures the debt. If you fail to stay current with that second mortgage you took out last year to pay off your credit cards, your lender can foreclose and sell your home out from underneath you.
That is far worse than getting sued by a credit card company. This is exactly what happened to Sandy. She was having a very difficult time repaying the $40,000 she owed on her eight different credit cards. Sandy decided to take out a second mortgage on her house at 8 percent interest, which was substantially less than the interest rate on her credit cards, and pay off all of her debts.
Unfortunately, two years later, she lost her job, was unable to continue to pay both mortgages, and lost her home in a foreclosure sale. Had Sandy not swapped her credit card debt for a second mortgage on her house, she would not have lost her home.
Had she not taken out the second mortgage to pay off her debts, Sandy probably would have had about $50,000 in credit card debt when she lost her job. At that point, she could have stopped paying the credit cards and earmarked any money she did make to pay her existing mortgage. Although she undoubtedly would have received many nasty phone calls from her credit card companies, an unsecured creditor cannot foreclose on a house like a secured lender can. Sandy would have kept her home.
If you are refinancing to pull money out of your house, you’d better be very careful. You need to be pretty darn sure that you will be able to pay the new secured debt. On the other hand, if you are refinancing in order to reduce your interest rate and thereby make your monthly budget work better, go right ahead; we’re with you.

There are three main factors to look at when determining the costs and benefits of refinancing:

1. What will be the difference between the present rate and the new rate? An old rule of thumb was that if you could lower your interest rate by 2 percent, refinancing was worth it. Anything less than that would have been eaten up in costs and fees. Today, there are many more loan options, so the old rules do not apply. If you can lower your interest rate, you are well on your way to making a good decision.
2. What are the total costs associated with the refinance transaction? The costs of refinancing have decreased greatly in the past several years. With no-point loan options, for example, borrowers can save thousands of dollars upfront. Your mortgage lender or broker should give you a specific breakdown of all closing costs so that you will be able to calculate your savings exactly.
3. How comfortable are you with possible payment changes over the life of your mortgage loan? If you are not saving money, there is no point in refinancing.

There are basically five situations in which refinancing seems attractive:

1. You can lower your interest rate for “no cost.” If you have a fixed rate loan and can refinance at “no cost” into a similar term loan at a lower rate, you should refinance.
2. Your adjustable rate mortgage is about to go up. If you have an ARM that is about to increase, you may want to refinance with a fixed rate loan.
3. You have an ARM, and your nerves can’t take it any more. ARMs are scary because your rate can go up at almost any time. If you want some more certainty and budget control, a fixed rate refinance is the way to go.
4. You have a balloon payment loan. A large lumpsum payment can wreak havoc on your finances. Trading it in for a more conventional loan makes sense.
5. You need cash. The fifth situation in which refinancing seems attractive is when you need some extra cash and you want to refinance the house in order to pull out some money. This proposition is inherently dangerous, and we do not recommend it. However, if you have plenty of equity in the house and are in a severe debt crisis, refinancing may be an advisable approach to solving your problem. Read on.

The first four situations make sense because you will likely be saving money, but the last option is inherently dangerous. Let’s look at each situation a bit more closely and show you why you may want to refinance.