equity loan payments – home

March 22, 2011

3 Most Expensive Home Equity Loan Mistakes

Filed under: Real Estate — Tags: , , , , , , , , , , , , , , — @ 1:49 am
L. Sampson asked:




Home equity loans can be a wonderful source of credit. However, when it comes to home equity loans, you can’t afford to make a mistake–your house is the collateral. Below are the three the most common, and the most expensive, home equity loan mistakes.

Mistake One: Choosing the Wrong Home Equity Lender

The competition between home equity lenders is fierce. They are currently offering the lowest interest rates that have been seen in years. Before choosing a home equity lender, there are a few things that you should consider, such as interest rates, closing costs, lending fees, and loan terms and conditions. Don’t be afraid to shop around. Choosing the wrong lender could be one of the biggest home equity loan mistakes that you can make.

Mistake Two: Borrowing Too Much

Borrowing too much money is a common home equity loan mistake. No matter how much money you borrow, you will have to pay it back. Consider this carefully before deciding on the size of your home equity loan. Remember, if you get a large loan and cannot make the large payments, you could be putting your home at risk.

Mistake Three: Missing Payments

Taking out a home equity loan is serious business, and should be treated as such. If you take out a home equity loan, the worst mistake that you can make is missing payments. Once you get behind, it can be very hard to catch up. If you miss too many payments, the bank can seize your house. Before taking out a home equity loan, make sure that you carefully review the terms and conditions. Ask your lender what will happen if you fall behind or miss a payment. You may also want to ask about grace periods, skipping a payment, loan insurance, and refinancing

Roy

March 8, 2011

Interest Only Home Equity Loans

Filed under: Real Estate — Tags: , , , , , , , , , , , , , , — @ 9:08 am
Louie Latour asked:




Interest only home equity loans are an option for the homeowner that needs to have low initial payment amounts for a home equity loan. If you need cash from your home equity but are concerned your budget cannot handle the payments at the moment, an interest only home equity loan could be right for you.

This home equity loan is different from your standard home equity loan; during an initial period the borrow makes interest only payments that do not include any of the loan principal. This interest only period varies by home equity lender; interest only home equity loans are interest only for one to five years.

At the end of the interest only period the loan is converted to a fully amortized, traditional home equity loan and the borrow will see their monthly payment go up significantly to include loan principal. The payments will be much higher at this point because the interest only period is gone from the amortization schedule; you now have to pay back more in less time compared to a standard home equity loan.

If you are in the process of selling your home and need to make repairs, you could benefit from an interest only home equity loan. This loan would allow you to make the necessary repairs to sell your home while keeping more cash in your pocket. After you sell the home you can pay back your primary mortgage and the home equity loan.

Interest only loans of any kind have the potential for financial peril if abused. Interest only loans are not interest only forever; the lender is going to want their loan principal back at some point, and when this happens the monthly payments will go up significantly. This loan secured by your home like your primary mortgage; If you fall behind on your payments the lender can take your home. To learn more about using interest only loans while minimizing the risk, register for a free mortgage guidebook.

Aaron

February 24, 2011

How To Calculate Loan Payments and Amortization on the Back of an Envelope With a Cheap Calculator

Filed under: Real Estate — Tags: , , , , , , , , , , , , , — @ 6:20 pm
Peter Boston asked:




In a previous article we presented a simple formula to calculate the amount of a monthly home mortgage loan payment. The formula applies to any compound interest loan. The only special equipment you need is a calculator with a power function key. That’s the key with the y superscript x (y ^ x). If you have kids in school you probably already have one.

Here is a review of monthly payment formula.

The variables are:

N = loan period in months. i.e. 20 years = 240 months.

R = interest rate in whole numbers. i.e. 8% written as 8.

P = principal amount of the loan. The amount borrowed.

Q = the Q factor. An intermediate calculation.

M = monthly payment amount

Here’s the entire formula for the monthly payment amount of a compound interest loan:

M = (P * R * Q) / (1200 * (Q -1))

Easy enough, but first you have to calculate the value of Q. Here is the formula:

Q = (1 + R/1200) ^N. Pretty simple, but you do need the power function key. N can get large.

In our earlier example we calculated a monthly payment of $418.22 on a $50,000 second mortgage at 8% for 20 years. You have paid the 2nd mortgage loan for 5 years (60 months). The pay off amount is $43,763 (rounded). This is how to calculate the pay off amount on any compound interest loan after N number of payments.

This is an easy three step process with a subtraction at the end. First calculate the growth value of the loan amount (P). P increases by a factor of (1 + R/1200) per month, so after N months the value of the principal amount of the loan would have inflated to P * (1 + R/1200) ^ N. For the current $50,000 second mortgage the calculation looks like this:

50000 * (1 +8/1200) ^60 = 74492.28 (step one)

The monthly payments have also inflated by a factor of (1 + R/1200) per month so in math talk we have a geometric series with n terms. The monthly payment part is a little more complicated and the formula looks like this:

1200 * M * ((1 + R/1200) ^N -1) / R

Plug in the actual values and it looks like this:

1200 * 418.22 * (1 + 8/1200) ^60 / 8 = 30729.49 (step two)

Now finish up by subtracting the inflated repayment value from the inflated loan amount value to get the pay off amount:

74492.28 – 30729.49 = 43762.79 (pay-off)

Once you know how to calculate the monthly payment and pay-off amount for any compound interest loan on the back of an envelope, you can noodle mortgage and car loan what-ifs from anywhere.

Mathew

February 22, 2011

2nd Mortgage Equity Loans Behind a Payment Option Home Mortgages

Filed under: Real Estate — Tags: , , , , , , , , , , , , , , — @ 5:54 am
Maria Ny asked:




Option adjustable rate mortgages (ARMs) were created in 1981 and for years were marketed to well-heeled home buyers who wanted the option of making low payments most months and then paying off a big chunk all at once. For them, option ARMs offered flexibility. However, as housing prices skyrocketed, option ARMs became the only way people could afford to buy a house due to the very low initial mortgage payments and low qualifying rates.

The option ARM home loan is also known by several names like pick-a-pay loan, pay option ARM, payment option mortgage and deferred interest loan because it offers several payment choices–a negative amortization minimum payment option, an interest-only option and two fully-amortized payment options, one being based on a 30-year loan and other a 15-year payment option. What most people don’t know is that it is also known as a negative amortization (neg-am) loan.

The problem is that most home owners who financed their purchase loan or mortgage refinance with option ARMs choose to make the minimum payment option. Roughly 75% of borrowers with option ARMs are currently electing to make the minimum payment, according to UBS AG.

One of the least known facts about option ARMs is that getting a second mortgage behind these neg am loans can be extremely difficult. A negative amortization loan places a second mortgage lender in a more precarious position than when loaning behind any other type of loan. Thus, a neg am can hold you hostage because very few lenders will go behind a negative amortization 1st. Lending underwriters calculate the1st mortgage balance by gross up balance 115% or 125% depending upon the mortgage note, so you should consider whether you may need a second mortgage before you get a payment option mortgage with a 1% start rate.

How can you get out of an option ARM (neg am) loan so you can get a second mortgage? Depending upon the credit score you may need to refinance your negative amortization 1st and then get a new home equity loan (second mortgage) so you can refinance debt and maybe even get a cash-out second mortgage for home improvement, investing in a second home or taking care of other expenses. If you choose to refinance, you should start exploring your options about six months before your loan changes.

Eileen

February 18, 2011

CITI Mortgage Loan Modification – Behind on Payments?

Filed under: Real Estate — Tags: , , , , , , , , , , , , , , — @ 5:26 pm
Andy Faria asked:




Common sense says that CITI Mortgage should offer loan modifications to struggling homeowners before they fall behind. Well, they don’t and anybody that has tried for a modification while keeping the payments current can attest to this. It does not matter what your financial situation is, CITI will never modify a loan while the payments are still current. The only option left for the struggling homeowner is to fall behind on payments, if they want to have a solid shot at loan modification. As crazy as this sounds they won’t help until it becomes enough of a problem that the payments go thirty days delinquent.

The best way to compare this is to a light switch, it’s either or on or off. The same applies to mortgage payments, they are either behind or current, there is no gray area. With this said there is no benefit to fall further than one month behind on payments either. Many people make the mistake of stopping payments altogether while their loan is in review for modification. The review process can be lengthy with CITI and if the end result is a denial there will be a sizable amount of missed payments to deal with. The borrowers leverage does not improve at all by falling further than one month behind.

CITI Mortgage offers many loan modification programs that will push all the missed payments into the loan. With this in mind if a modification review is a sure thing and the terms all but finalized, it may not be in somebody’s best interest to submit a payment right away. CITI will certainly cash the check and apply it to the past due balance, and they will just push less into the loan. For many this extra cash is needed during this time and could be used towards making the first new modified payment or in savings as a safety net.

In conclusion, CITI mortgage offers more options for struggling homeowners than most. It’s best for them to plan for and expect to devote quite a bit of time to this process. While a loan is working its way through the CITI loss mitigation department it’s very important to understand exactly where the loan stands and not to let it get too far behind. Also important is understanding when sending a payment may be unnecessary and lead to a costly mistake.

Manuel
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