Mortgage Help - Debt Relief, Renegotiation Tips, and FAQs
Will a bank actually work with me if I'm in trouble?
I requested a loan payoff from my mortgage company and the payoff quote exceeded my outstanding balance by $1,500! Why?
What are points?
One point is equal to one percent of the principal balance of a loan. So for example, if you wanted to obtain a home loan for
$200,000, then one point would be $2,000. Discount points are a one-time fee charged by the bank at loan closing. Borrowers
can offer to pay points in increments of eights to a lender as a method to reduce the interest rate on the loan, thus obtaining a
lower monthly payment in exchange for this up-front payment.
What does “locking a rate” mean?
Locking a rate allows the borrower to fix the initial interest rate until loan closing. As most loan applications take between 15-45
days, there is a good chance that rates will fluctuate during that time period. To guarantee that you will receive the initially
quoted rate at loan application, you must request that the lender lock the rate for you. Most rate locks are charged anywhere
between zero and one-half of a point. You can lock a rate for 15, 30, 45, 60, or even 90 days with most lenders, with the points
increasing parallel to the amount of time needed for the rate lock. If rates decrease while you have a rate locked, you will not be
able to obtain the lower interest rate.
When does it make sense to pay points?
Generally speaking, the longer you plan on living in your home, the more sense paying points will make. There is a calculation
that will tell you just how long you need to live in your home to break even. It is calculated by dividing the difference between the
mortgage payment with points and the mortgage payment without points by the cost of the purchased points. Since that
sentence is nearly impossible to understand, here’s a visual: Cost of Purchased Points / (Monthly Payment Without Points) –
(Monthly Payment With Points) = Monthly Points Savings. The final number will equal months, so to calculate this figure into
years, simply divide by 12.
Can I get a home loan if I have no credit?
Yes. Many banks will require you to do two things prior to considering your loan application. You will first have to write a letter
explaining your situation to the bank, essentially telling them why would be a strong asset to their balance sheet. Secondly, you
will have to provide two years of successive bill payments (electric, water, sewage, rent) evidencing that you are capable of
servicing debt. Note that if you do not have two years consecutive without missing a payment, your loan application will most
likely be refused.
What are the main factors that come into play when applying for a loan?
The major factors are your credit score and the proposed loan-to-value of the home. Loan-to-value is simply the ratio of your
proposed mortgage amount to the value of the property. If it is a purchase, the lender will usually take the lower of the
appraised value and the contract price to determine loan to value.
Have you downloaded the free budget yet? Our free budget spreadsheet is updated for 2008 and features a monthly account
tracker and budget form!
Will a bank actually work with me if I'm in trouble?
- Absolutely. Oftentimes, when a lender finds out that your home is worth less than what is outstanding on the note, they
realize that they are at risk of taking the property as Other Real Estate. This is not what a bank wants, as they have neither
the time nor resources to carry real estate on their books. You have a series of options open to you:
- Deferment
A deferment is a period of time during repayment in which the borrower, upon meeting certain conditions, is not required to
make regular monthly payments. Deferment types include: in school, unemployment, economic hardship, graduate
fellowship and rehabilitation training.
Forbearance
A forbearance is a period of time during repayment in which the borrower is permitted to temporarily postpone making
regular monthly payments. For example, a forbearance may be granted if the borrower does not qualify for a deferment or is
experiencing financial difficulty.
- The easy answer to that question is maybe. There is no uniform answer that suits all people. To clear the clouds, let's look
at what factors go into potentially paying off a mortgage. The most important factor is your own personal liquidity. Do you
have enough money to meet emergencies after you have paid off your mortgage? Remember, your mortgage is not a line of
credit. While nearly all lenders would salivate at the opportunity to lend money on a free and clear property, it would likely
take two to three weeks before you could access that cash. And home equity loans are oftentimes higher interest-bearing
than a regular mortgage.
The second factor that goes into this decision is your other outstanding debts. Do you have other loans (such as a credit
card) that have higher interest rate than your mortgage? If so, this obligation is likely not tax-deductible as well as having a
higher interest rate. In this case, it would be prudent to first pay off your higher interest-bearing accounts before paying off
your mortgage
The third factor to consider is other potential investment choices. Consider your age. Would this money be better spent
investing in mutual funds that have the power to compound interest? The sooner you can get the compounding interest
cycle started, the better off you will be at retirement!
We already alluded to this earlier, but another factor to consider is tax-deductibility. Once you pay off that mortgage, you will
not be receiving as much of a tax refund in the mail the following year.
Most of the answers in this scenario would lead one to believe it is not advantageous to prepay a mortgage. While this is not
the intended argument, it is geared to make you evaluate each of these factors before making that ultimate decision. There
is no better feeling in life than to be mortgage-free, and if you have the liquidity to make that a reality, then you have been truly
blessed.
I requested a loan payoff from my mortgage company and the payoff quote exceeded my outstanding balance by $1,500! Why?
- The primary reason that your payoff is higher is a result of daily interest accrual on your mortgage. When you receive your
statement, notice that the payment will be reflective of a certain period cycle (e.g. June 15 - July 15). If you request a payoff
effective August 1, there are 16 days worth of interest that have been unpaid at the time the payoff was requested. When you
have a payoff statement prepared, the lender will account for the interest for every day up until the mortgage loan is paid off in
full. Secondly, if your loan has a pre-payment penalty, you will also see this reflected on the payoff quote. Finally, all states
charge a recording fee for the bank to release the lien on the property. Most quotes itemize the outstanding balance due as
of the payoff date, any applicable pre-payment penalties, and State recording fees to release the lien. While it is rare that the
payoff quote is inaccurate, you should always double-check the figures to ensure they are not overcharging you!
What are points?
One point is equal to one percent of the principal balance of a loan. So for example, if you wanted to obtain a home loan for
$200,000, then one point would be $2,000. Discount points are a one-time fee charged by the bank at loan closing. Borrowers
can offer to pay points in increments of eights to a lender as a method to reduce the interest rate on the loan, thus obtaining a
lower monthly payment in exchange for this up-front payment.
What does “locking a rate” mean?
Locking a rate allows the borrower to fix the initial interest rate until loan closing. As most loan applications take between 15-45
days, there is a good chance that rates will fluctuate during that time period. To guarantee that you will receive the initially
quoted rate at loan application, you must request that the lender lock the rate for you. Most rate locks are charged anywhere
between zero and one-half of a point. You can lock a rate for 15, 30, 45, 60, or even 90 days with most lenders, with the points
increasing parallel to the amount of time needed for the rate lock. If rates decrease while you have a rate locked, you will not be
able to obtain the lower interest rate.
When does it make sense to pay points?
Generally speaking, the longer you plan on living in your home, the more sense paying points will make. There is a calculation
that will tell you just how long you need to live in your home to break even. It is calculated by dividing the difference between the
mortgage payment with points and the mortgage payment without points by the cost of the purchased points. Since that
sentence is nearly impossible to understand, here’s a visual: Cost of Purchased Points / (Monthly Payment Without Points) –
(Monthly Payment With Points) = Monthly Points Savings. The final number will equal months, so to calculate this figure into
years, simply divide by 12.
Can I get a home loan if I have no credit?
Yes. Many banks will require you to do two things prior to considering your loan application. You will first have to write a letter
explaining your situation to the bank, essentially telling them why would be a strong asset to their balance sheet. Secondly, you
will have to provide two years of successive bill payments (electric, water, sewage, rent) evidencing that you are capable of
servicing debt. Note that if you do not have two years consecutive without missing a payment, your loan application will most
likely be refused.
What are the main factors that come into play when applying for a loan?
The major factors are your credit score and the proposed loan-to-value of the home. Loan-to-value is simply the ratio of your
proposed mortgage amount to the value of the property. If it is a purchase, the lender will usually take the lower of the
appraised value and the contract price to determine loan to value.
Have you downloaded the free budget yet? Our free budget spreadsheet is updated for 2008 and features a monthly account
tracker and budget form!
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