Here’s more great tips from David Reed on Five Year Increment mortgages….
Which is better, a 30-year or a 15-year fixed rate mortgage? A common and important question which, when answered, affects both the monthly payment and the amount of interest paid on a mortgage loan. While paying less interest over a shorter timeframe seems to be the obvious answer, the difference in monthly payment is surprising to some.
Here’s a great article from David Reed of CD Reed Mortgage Bankers…
For first-time buyers, often the first thought that comes to mind is, “I need a down payment.” This is often followed by the question, “Now, where do I get that down payment?”
Depending upon the loan type, a home mortgage typically requires 3 to 5 percent down. If you have the money, then you’re set. But what if you don’t? What if you’re renting? You can afford a mortgage within your means, but coming up with the down payment money needed to begin the transaction can be challenging. So, where can you turn?
Points: To pay or not to pay
by David Reed
Numerous closing costs come with any mortgage. There’s a fee for an appraisal and a fee for a credit report… and the lender has its fees, too. And don’t forget about the attorney fee, title insurance and escrow charges. Closing costs can vary from state to state and province to province, but you really don’t have much choice of whether you want a survey or if title insurance is right for you. There will be a variety of services performed and records searched by different companies, and none of these come free of charge.
But there is one closing cost that you can control: discount points or, more simply, points.
A discount point reduces the interest rate on your mortgage. One point is equal to 1 percent of your loan amount, so on a $200,000 loan one point equals $2,000.
Why do some lenders charge points? In reality, all lenders pretty much have the same rates; it’s just that sometimes a lender will advertise a rate with a point or a rate without a point. But the decision to pay a point is yours alone.
A point will typically reduce your interest rate by a quarter of a percent on a 30-year mortgage. If your lender offers a 6.5 percent rate with no points, then you may also get 6.25 percent with one point. So how do you decide?
It’s simple. Just take the difference in monthly savings gained with the lower rate and divide that into the point. The result equals how many months it will take to “recover” the amount
you paid in points. Let’s look at an example.
A 30-year fixed-rate mortgage of $200,000 at a 6.5 percent interest rate would mean a monthly principal and interest payment of $1,264.14. By paying an additional $2,000 in the
form of a point, your rate would drop to 6.25 percent and the resulting payment would drop to $1,231.43; saving you $32.71 each month. When you divide that $32.71 monthly savings into $2,000 you get 61.14, or about 61 months. Your recovery
period is slightly over five years. That’s a little long in my opinion and I’ve never been a big fan of paying points. Instead, I’d encourage you to take that same amount and pay down your principal.
Remember: The quarter percent difference in interest rates when paying a point is an imprecise, general mortgage rule of thumb. Whichever rate you get, be sure to divide the savings into the points paid to see how long it will take to recoup the difference.
Click here to visit David Reed’s website for more Financial Solutions.
Is Owner Financing For You?
by David Reed
Owner financing has been a popular practice in previous real estate downturns. Current market conditions and upheavals in the mortgage industry have given rise to a new-found interest in this idea. If you own your property outright, have a need to sell in a soft market and are interested in converting your sold home into an investment that yields returns, owner financing may be a option worth exploring.
Successful owner financing means that you, the owner of the property, get to widen the potential pool of home buyers by offering to finance the transaction. And since private lending, where you act as the mortgage lender, tends to offer higher than standard interest rates to offset risks, you can also enjoy a nice return on the home loan.
Due diligence is the key to successful owner financing. This is not intended as a means to provide financing for those who have damaged credit, little or no income or some other “loan of last resort” characteristic. So who is this ideal candidate and how do you, the owner, evaluate such a proposition?
Your ideal candidate is someone who has excellent credit but for some reason, lenders aren’t using all or part of the buyer’s income. For instance, someone that has been an attorney for a legal firm for several years and just last year started their own practice or an experienced mechanic who ventures out on his own to open up his own shop. Lenders like to see two years’ worth of self employment when evaluating a loan application.
You’ll need to check the buyer’s credit and you can do so by getting written permission to pull a credit report. Or, you can log on together to www.annualcreditreport.com and print off a current report at no charge. Have the prospect provide you with three months most recent bank statements, personal and business, to show cash flow. To verify employment, dial “411” and ask for the phone number for that person’s business and call the office.
You can only hold a note on a property that is free and clear. Any transaction where title changes hands will trigger the “due on sale” clause inserted in mortgage loans.
Finally, and most importantly, get a substantial down payment. Anything that is 20 percent down indicates that the buyer is serious. Most owner financing arrangements are done on two to three year balloon notes. The idea is that your non-qualifying buyer will have time to establish a track record with their earnings and refinance with a traditional lender.
If the market is slowing down the sale of your home, discuss the possibility of adding owner financing to your listing with your agent.
Click here to visit David Reed’s website for more Financial Solutions.
Mold maybe growing in your home. Mold growth can damage your home as well as cause health problems. The U.S. Environmental Protection Agency has published a Mold Prevention Guide. Click here to learn about the problems related to mold, how to clean mold, and how to prevent future mold growth.
