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

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

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

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

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

Oswin Grant asked:




A trial loan modification is generally an introduction of a mortgage loan modification in the trial phase. It is a period of giving the homeowner an opportunity to show how well they can follow their new mortgage payments, and is usually a pre-cursor to the actual modification or long term fixed payment. A lot of time and resource has been put into getting a homeowner to this point. The trial period is just for a few short months.

The homeowners financials were carefully analyzed and weighed in the final decision of granting a homeowner the chance to show that they now have the ability to follow a rigid loan modification proposal. Pay checks, tax returns, other financial contribution, unpaid principal balance, property taxes, property insurance, hardship letters, tax release forms, property occupancy status, state laws, housing debt to income ration, the origination date, how many previous loan modification has the borrower had, signed affidavits of hardship, pay stubs, property value, net present value are evaluated; they all make up most of what is required in order to successfully complete the loan modification process. The loan are targeted for a fixed rate fully amortized loans.

It is important for the homeowner to try to follow the terms of the loan modification as closely as possible once offered. If a mortgagee fails to complete the trial period, that shows that the may not be prepared for the real modification if they can’t complete the trial. It’s important to send in the 1st payment and all of the trial payments on time with all required items if any in a timely matter; so that the offer is not rescinded. Once the 1st payment is made do some follow up with your lender to make sure that everything is going smoothly and there is nothing still missing. If there are any problems, such as missing or out dated information that is required to continue with the loan modification then try to full fill those requests as soon as possible that way you don’t mess up your opportunity for a lower mortgage payment that did not require refinance to lower your payments.

Remember a mortgage loan modification is privilege not a right. If you are given an offer that seems moore attractive than your present mortgage terms as in a trial modification, then take it and follow through with it’s requirements. Remember that just because you were offered the assistance does not necessarily mean you do nothing else. You may need to do some additional tasks to complete your requirements in order to fulfill your terms to cement that trial offer into a permanent new lower payment. Isn’t that what you are looking to do anyhow, so do it and done with it.

Ricky

Malcolm Glazer asked:




A number of people around the Atlanta area are working with home loan modifications. They are doing this as a means of helping to afford their mortgages and to avoid adding themselves to the nearly two thousand foreclosures that Fulton County deals with each month. However, an Atlanta home loan modification will not feature a grace period at any time.

A grace period in a loan is a period of time where a person is not going to have to pay anything off. This means that the person can miss something and not be punished for it. This could be a useful thing but at the same time it will end up not being a factor in an Atlanta home loan modification.

The Atlanta home loan modification one is in will not feature a grace period like this when it is in its trial stage. A person who is in a trial modification must make all of the payments on it on time. Failing to make payments on time in the trial period will cause a person to end up losing the loan and dealing with the original terms on the loan.

In some cases the modification will not be cancelled. However, it can be delayed substantially. Remember, a person who is with a trial modification is on a very short leash and is not going to have a grace period to work with for getting the loan paid off.

When the loan modification does become permanent there is still no grace periods involved. The punishment for missing a payment and being late on it during the final period of the modification is going to be the same as what one dealt with. The same late fees and added interest charges will still be involved. This is used because the lender should be expecting the client to make payments on time when a modification is being handled.

Also, the chances of a lender trying to start the foreclosure process sooner are important to see. The lender might want to start the foreclosure process sooner if a person does not pay off mortgage loan payments on time after the modification. This is due to how the lender will want to believe that the borrower is actually going to pay off the loan in a respectable period of time. A lender who sees that a client is not paying it off properly will end up being more likely to pay it off.

It will be a good idea to take a look at this when it comes to dealing with an Atlanta home loan modification. The grace period that might be found with some other types of financial investments is not going to be present in the Atlanta home loan modification that one can get. The investment that is used here should be something that a person can easily pay off over time. Using this standard is critical for anyone to work with when getting something to work out right on a mortgage loan.

James

Jeong Lee asked:




As the foreclosure reports take over the economic news every day, many Americans can not prevent having worries in their head that they could be in identical mess one day. It is a dream turning into nightmare to have ones home foreclosed. Many people in that position might not easily get over the indignity they go through. although they would have done anything they could, they would still sustain the blame of being incapable homemakers.

It is a hard point that a few foreclosures could not have been stopped. Nonetheless, there is a common feeling that mortgage companies have not done enough to assist battling homeowners in the process of loan modification. Considering the cost of foreclosures, mortgage institutions perhaps got it wrong in many cases when they stood their grounds in a loan modification. People not knowing what they could get out of a mortgage modification might not help themselves as well. Furthermore, some fraudsters might have led consumers to rely on them and ending up losing even more money and time in the process.

A few homeowners have taken advantage of low refinance rates and still plenty of them are qualified. Unfortunately, these great rates have possibly arrived too late for many. It should be underlined here that homeowners who are able to refinance their mortgage loan now should feel themselves fortunate. Many homeowners could have done well with these low rates a couple of years ago in advance of falling behind mortgage payments. Instead of worrying sick about home loan payments, homeowners should look at possible course of action. That may be looking for a loan modification, refinance home loan or renting out spare rooms. Do what you can not to let your home to be the next one going down on the foreclosure route.

Rose

Gordon H. Smith asked:




A monthly home payment loan can refer either to your mortgage or to the payments on a home equity line of credit. Fortunately, there are ways of lowering either or both types of loans depending on your current financial situation. Who knows lower monthly payment could mean the different between keeping or losing your home.

Everybody dreams to have his or her own house in the future where they can relax after they retire from working. Almost everyone wants to have a place that they could call their own, a place where they don’t need to worry if they’d be kicked out if they cannot pay the rent on time where all they need to worry is the electric and water bills.

When you get older you would want to have a place where you could retire peacefully and just wait for your children and grand children to visit you in your house. However there are times when you are in a very tight situation and your other option is to loan your home.

There are many different types of loan and one of the most common is the housing loan in this loan you will be required to pledge your home to the lender and let the lender hold the deed of your property until you pay the money you have borrowed.

Many people apply for this loan they have their own different reason some maybe due to emergency where they need to get a big amount of money, or to some they need to loan their home in order to pay for some debt. But whatever their reason is when people get this loan they are risking to lose their home. Unless they will manage their loan well and pay off their monthly payment on time.

Here are some tips and advices about monthly home loan payment.

Paying the bills on time especially your loan bills is your responsibility, when a time come that you will miss your payment for some important reason then you must not panic. The lender will not foreclose your house because you miss one payment, when this happens you must call your lender and talk to them tell them the reason why you missed your payment and ask them what other options you have to settle you miss payment.

Doing some research about home loan will also help you along the way, you have to understand about home loans and their payments. When you encounter some problem you won’t panic for you will know what you need to do to resolve the problem.

Before you apply for loans you could find a lender that is reputable and can be trusted that also gives you a lower interest rate. You need to gather information and compare then to see which of them gives you a better option.

The formula in order to calculate your monthly payment loan is M = (I/12)*P. M stands for monthly payments, I for interest rates and P for principal. So you will need to divide your interest rates by 12 and multiply it with the principal then you’ll get your monthly payment.

But the answer to this formula will not be your final monthly payment for there are other fees such as taxes and insurance that will be added by the lender and then you’ll get your final monthly payment.

Cynthia

Sarah Dinkins asked:




Lower interest rates and monthly home equity loan payments can make cash available for other usage or make debt more manageable. As interest rates move in cycles, when rates drop, it is the best time for refinancing. This is what most advisors suggest provided that your home equity loan is due in a long repayment program.

How to Know When To Refinance

Refinancing is not recommended if you plan to sell your home in a year. With closing costs and other fees, it’s crucial to know whether refinancing cost is offset by lower monthly payments. Refinancing also avoids a balloon payment. Combine your first mortgage and home equity loan or credit line for one fixed-term payment and avoid a huge lump sum payment.

Using equity from refinancing to pay off credit card debt makes a bad deal. In transferring $15,000 in credit cards to a new 30-year first mortgage, monthly payments may decrease but due to the long term of the loan, it costs more to pay off otherwise revolving credit cards.

Fees And Other Charges

Better than that is to take 10 years to pay off the charge cards which can save you 20 years worth of additional interest. Consider also how long it will take to break even. Refinancing costs of $2,500 with payments $100 lower each month, you need 25 months to break even.

Apart from lower interest rate, refinancing also offers the advantage of converting all or part of your equity loans to a fixed-rate installment loan. It also enables you to acquire a shorter-term loan to build new equity more quickly. In refinancing at lower rates, it is common for homeowners to take cash from the equity for a remodeling project too.

Refinancing is Not For Everyone

10 years into a 30-year mortgage makes refinancing a new 30-year loan pointless as it would mean paying off for 40 years. Keeping mortgage on the books for this long can boost overall interest expenses for a home.

If your credit is worse now than when you originally borrowed, then it is not advisable to refinance. Credit score falls with late mortgage, credit card or auto payments since buying your home. Since you no longer qualify for the best rates, refinancing may boost payments and interests instead of lowering them.

Home Equity Loans And Lines Of Credit Are Cheaper

Conditions in the loan market have improved in the last few years and the interest rates have dropped too. Getting a home equity loan or line of credit can be really cheap and it is undoubtedly an excellent source of funds. Taking advantage of no closing costs promotions is also a smart thing to do.

Vincent