How to Make your Mortgage Money Work For You

If you own a home you already know the benefit of getting a yearly credit against the interest. But, if you’ve owned it for more than 12 to 15 years your deductible interest is no longer offsetting your taxes. There are many ways to make having a mortgage work for you. To discover all the options available, contact a company like Flagship Financial Group to assist with the process.

Most people focus on paying their monthly mortgage payment without giving a thought to how much equity they have in their home. Many even try to add a little extra to pay the debt off earlier than their loan term. While it’s good to keep your debt-to-income ratio in check, it’s also smart to use your investment to your advantage. Think of your home as a savings account. You build equity and borrow against it to pay for things without taking on more debt. It’s a win across the board. You can use the money to renovate, pay for school tuition or to pay off debt. By refinancing, you’ll get a low-interest rate versus a credit card. Plus, you won’t take money out of your savings and you’ll get to deduct the interest on your taxes.

There are many other reasons why refinancing to fund your investment is a good idea. If you’ve always wanted to invest in real estate but never had enough to cover the down payment requirements refinancing your home might be your best option. You can use the equity to reinvest and earn extra income. Since it’s an investment property, lenders will take into consideration the yearly rental income you will make on the property and add that amount to your net income.

If you currently have a fixed rate mortgage and you are looking to lower your monthly costs, you can refinance using an ARM (adjustable rate mortgage). This type of loan gives you a lower monthly premium for the first few years. It can help anyone who is at the top end of their budget reduce costs and get back on track. When the rates change and your payment increases you can always refinance again.

If you are an active or retired member of the military, refinancing using a VA loan can give you a lower monthly payment without the need for a down payment. Since the loan carries a guarantee for payment from the U.S. Government the approval rate is much higher. You don’t need a high credit score and the closing costs are minimal compared to a conventional mortgage. Also, unlike all other loans, there is no P.M.I. insurance added, saving you thousands over the term of the loan. Use social media resources, like the Flagship Financial Facebook page, to review your options.

Owning a home can also help you save for retirement. If you suffer a hardship and need extra cash, instead of reaching out for your pension or 401K, use the equity in your home. You should never borrow against your retirement accounts. The first reason is obvious; it’s for your retirement. Secondly, when you do, the penalties are stiff. You’ll pay 20-30 percent off the top before you get the money. And then when you report it on your taxes you can expect to pay at least another 10 percent. By the time you’re done you’ve spent almost half the money on absolutely nothing.

Whether you are looking to lower your monthly payments, invest in property, renovate or pay off debt, using your home can have lasting benefits. It allows you to have a lower interest rate versus using credit cards or personal loans.

 

Mortgage Regulation Helps Lenders Learn from the Past

mortgageThe mortgage industry has undergone a unique series of changes over the last decade. New regulations, for example, have been set in place following a serious default crisis, which brought lending to its knees. Risky practices, it seems, came around on the industry, creating a domino effect that has taken years to reverse. And while high levels of oversight are designed to protect borrowers, the changing landscape of mortgage lending actually hinders buyers, at times.

As the mortgage industry continues to evolve, home buyers and remortgagers must adapt to new conditions. What worked a decade ago may not be an option any longer. Conventional wisdom about the best mortgage approach has changed, so if you are in the market for funding, your expectations may also require adjustment.

History Sets Future Pace

Like other financial markets, the mortgage lending industry responds to general economic conditions and regulatory requirements. Mortgage interest rates and terms are based upon prevailing conditions and the loans are governed by industry regulations. So as economic indicators ebb and flow, lenders act accordingly. Unfortunately, the system was tested with recent crises.

Before the financial downturn, lenders operated in a robust market, where houses changed hands frequently and mortgage financing was in-demand. As a result, qualified buyers were able to take out high loan-to-value mortgages to cover home buys. Under the conditions they were extended, the mortgages were manageable. But things changed.

As house prices fell, many of those with expensive mortgages found their homes were no longer worth as much as their loans. One by one, home owners found themselves with negative equity. Once “underwater” the circumstances were further complicated for many borrowers, who faced additional financial pressure alongside their home devaluation. Lost jobs and slowed earning potential left many unable to pay, as each negative outcome fed the next. The subsequent downward spiral had global implications, which ultimately led to changes in the way loans are administered.

New Rules for Lenders

vacation homeThe mortgage industry is not alone facing new regulation. Payday loans and other forms of financing have also come under review, leading to changes. Various forms of financing are evaluated on Readies, to help borrowers weigh their options. Whether you are shopping mortgages or other loans; expect to see a different set of regulations than you did in the past.

Lenders are now required to undertake full-scale affordability checks for every loan they make. Though it would seem like common sense, reckless practices have prompted oversight agencies to make laws ensuring safe standards are in place. Your credit references and earnings are central factors determining your ability to borrow money. The new regulations ultimately influence how much you’ll be approved for and other terms tied to your mortgage. The application process also takes longer than it once did, further slowing your path to needed financing. The built-in lag thwarts over-eager lenders, but it can also interfere with your home buy. In addition to your financial ability to repay your mortgage, lenders look at other factors, as well.

Age Is a Factor

Mortgage seekers over the age of 40 are also experiencing unique conditions as they seek financing. Older borrowers have fewer employment years left to earn money toward repayment, so lenders need further assurances when issuing funds to aging applicants. Beyond the standard affordability checks, those over forty are called upon to prove they’ll meet obligations as they near and surpass retirement age. While lenders prefer to establish terms that enable mortgage holders to satisfy repayment before retiring, they will consider financing well-qualified applicants beyond retirement. Demonstrating guaranteed income from State Pension and private pensions is required of qualified applicants paying beyond retirement.

Though you’ll find access to funding that extends beyond your years of employment, most mortgages impose age 75 as the cut-off limit. For borrowers in their 50’s, this adds-up to higher payments and more substantial mortgage deposits.

Home buyers and remortgagers face new standards within the mortgage industry. Though most new rules do not hamper well-qualified applicants, it is important to account for the regulations as you plan for financing. Older individuals, especially, may need to adjust their expectations.

5 Ways to Pay Off Your Mortgage Without Breaking the Bank

pay off your mortgageMortgages aren’t as easy to get as they were a few years ago. But even if you can’t refinance your loan there are steps you can take that will enable you to pay your loan off early and save you tens of thousands of dollars.

There are different ways you can do this, making it easier to find a way that will work in your particular situation. Find one of the five below that will be most comfortable for you.

For each example we’ll assume you have a 30 year mortgage for $200,000 at 4%, with a monthly payment of $955. Use this mortgage calculator to see how this will work for your particular situation. YOU CAN ALSO USE THIS MORTGAGE CALCULATOR FROM ZILLOW!

Make your payment based on a 15 year loan

Some people are hesitant to take a 15 year mortgage due to the higher payment, and opt for a 30 year term instead. The difference in payment is substantial so its understandable why you’d want the longer term. But what if you take a 30 year loan but still want to pay it off in 15 years?

You still can.

You don’t have to have a 15 year loan to pay your mortgage off in 15 years”you can simply pay your 30 year loan based on a 15 year payoff.

Using the loan numbers above, by increasing your payment from $955 a month to $1,479”the monthly payment for a 15 year mortgage”you’ll not only pay your loan off in 15 years, but you’ll also save over $77,000 in interest.

Increase your monthly payments a little

If you can’t afford to make your payment based on a 15 year loan term you can still payoff your mortgage early by making smaller additional payments. You can increase your monthly payment by a flat amount that’s comfortable for you and that will still allow you to shorten the loan term.

Let’s say that you decide that you can afford to add $100 to your payment each month, increasing it from $955 to $1,055. By doing this, you can shorten your loan term by 3 years and 9 nine months, effectively reducing your loan from 30 years to 26 years and three months.

Make one extra payment each year

By making one extra payment on your mortgage each year an extra $955 based on our example you can reduce your loan term from 30 years to less than 23. You’re not increasing your monthly payment, you’re just making one extra payment each year.

Make periodic lump sum payments

Maybe you don’t like being locked into a higher monthly payment that’s fine, you can still shorten the loan term.

If instead of going the higher payment route you decide to save up your money and make a lump sum additional payment once a year or any frequency you choose you will still pay your mortgage off faster.

By making a single lump sum additional payment of $2,000 each year, you can shorten your mortgage from 30 years to less than 23 years. Seeing what lump sum payments can do to shorten your loan term can be a real incentive to pay as much as you can and pay off the mortgage even sooner.

Apply windfalls to your mortgage

Let’s say you aren’t much of a saver and you can’t afford to make higher monthly payments–there’s still a way pay your loan off early.

When ever you get a windfall, apply it toward your mortgage.

Let’s say you get a $5,000 income tax refund, and you decide to put it toward your mortgage how much would it shorten your loan term with just a single, one-time payment? One year and four months just for making a single payment in year one of the mortgage term.

What if you did the same each year let’s say the tax refund is only $3,000, but each year you faithfully used it to prepay your mortgage. You’d reduce your mortgage term by nine years and seven months.

Just by applying your tax refund to your mortgage each year not a bad deal!  Instead of letting your money sit in a savings account, apply your money to your mortgage!

Is paying off your mortgage early worth the extra effort?

Imagine your life without a mortgage; you’d have more money to spend, more money to save, more money to invest more money for everything! The sooner you can make it happen the sooner you can do all those things.

Once you start thinking that way you have real incentive to make it happen. You can even combine one or more of the strategies above to make it happen even faster.

Is giving up some money now worth having extra money later?

photo by wwworks

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